Negative Effects Of Financial Misallocation On TFP

More than30years of reform and opening up, China’s economy continues to maintainsustained growth, with an average annual growth of nearly10%. The rapid development ofeconomy not only greatly improves the people’s living standard and promotes the growthof social welfare in general. But there is a great disparity between different regions ineconomic development degree. Overall, the eastern coastal area and part of the central areaof the level of economic development and per capita income are significantly higher thanthat of the west. Finance department as a core sector of national economy, plays animportant role in economic development, especially financial resources as the basis offinancial development. Therefore, we should attach great importance to the impact of theallocation of financial resources to regional productivity.Since1992China’s implementation of a market economy has always implemented aseries of market-oriented reform policies, a good development environment andopportunities for private sector development, ownership structure has been greatlyimproved and optimized. In2010, capital profit of non-state-owned enterprises abovedesignated size reached11%, nearly double the state-owned enterprises above designatedsize. Although non-state-owned enterprises above designated size, return on capital andproductivity than state-owned enterprises is much higher, but China’s financial institutionsare significantly more preference to state-owned enterprises. For a long time,non-state-owned enterprises can only rely on entrepreneurs’ personal savings, enterprise’sretained earnings and the informal private channels for their own development fund.However, in order to support state-owned enterprise loan, the local government willinterfere with the bank credit, resulting in this inefficient loan support. Such kind ofimbalance financing situation between state and non-state enterprises is the financialmisallocation, which this paper wants to explain.This article is based on China’s financial resources misallocation and with differentdegree, absorbing the domestic and foreign research results, a comprehensive analysis offinancial resources misallocation and differences in the formation of deep-seated reasons,revealing negative effects of financial misallocation on regional productivity.The paperestimates the Chinese2001-2010financial resources misallocation of the provinces andtotal factor productivity, empirical studies of the Chinese provincial total factorproductivity growth difference to what extent decided by the financial resourcesmisallocation, for a deeper understanding of China’s economic growth,the regional gap andhow to promote the development of the underdeveloped areas provide support, then somesuggestion is given.