The Research Of China’s Non-formal Financial Regulation Based On The Regulatory Capture Theory

For a long time, the non-formal finance has played an important role inChina’s economic development. The non-formal finance not only effectivelybuffer the adverse effects of the macro-control, but also alleviate the fundingproblems of SMEs. However, the numerous of non-formal financial problemsbrought in economic and financial instability, which had caused widespreadconcern from people. Throughout the history of the non-formal financialregulation, we can find that the lag of central government regulation reform andthe deviation between the local governments and the central governmentregulation has exacerbated the failure of the non-formal financial regulation.Regulatory capture theory emphasize that the government regulation is tomeet the social need for regulation,but in the end legislative organs orregulatory actors will be captured by some interest groups,which lead to theregulation beneficial to these interest groups. The author uses the model ofregulatory capture theorety to analyze the failure reasons of non-formal financialregulation, and provide some useful suggestions to improve non-formalfinancial regulatory.To better illustrate, the author intends to analyze this question adopt thecontrast method and the layered analysis method. First, with the regulatorycapture model of Laffon, this article combine with the status quo of China’snon-formal financial regulation to build the non-formal financial regulatorycapture model. Secondly, this article compare non-formal financial regulation ofthe central government with the local government one, and analysis of thenon-formal financial regulatory capture process by layered analysis methods, toexplain the various interests how to game from their benefit in the threeinfluencing factors.The factors are information asymmetry, cost constraints oftransaction and constraints of political or administrative. Finally we led to tworesults from the analyze. One result is that the central government is captured by formal financial institutions. The another one is that local government iscaptured by the interest groups and capture central government agencies. Theresults explain the central government and local government’s regulatory how tolead to failure of the non-formal financial regulation, which is also the focus ofthis article. Finally, put forward some advises according to the influencingregulatory capture factors of China’s non-formal financial.