Research On The Effects Of Financing Structure On The Real Economy Efficiency In China Capital Markets

The economic growth rate of China gradually declined from a sustained high level in last decade to 7% since 2014. It’s a new normal for China’s economy. With the decline in economic growth, the primary task for government is not to maintain the rate of economic growth, but the quality of economic growth. China’s economy growth will not depend on investment but innovation in the future. The twelfth five-year plan proposed innovative development strategy. To develop the economy innovatively, the efficient capital market is needed. At the present stage, no matter the financial system or the operation condition of capital market of China is far away from innovative development strategy. One of the most prominent problems of China’s financial system is the imbalance of financing structure. Excessive dependence on bank credit funds leads to high liabilities of society and tremendous systemic risk when economic growth declines.This paper reviews the changes of financing structure and the development of China’s capital market since reform and opening policy. By concluding the researches on this field, this paper argues that the long-run planned economy leads to the absolute dominance of bank in the financial system. Coupled with the lag of capital market development and afunction of market, dominance of bank induced the imbalance of financing structure. Among them, too large proportion of credit funds and preference for low risk and low efficiency department lead to excessive funds concentrating on certain departments and resource allocation function of market weakened, resulting in low efficiency of economy. This paper reviews previous researches and divides social economy into two departments, state sector and non-state sector, supposing that the efficiencies of two departments are different, and capital in two departments cannot achieve an efficient equilibrium. Based on the review, this paper puts forward three hypotheses. First, the scale of financing and equity funds promote economic growth; Second, the scale of financing and equity funds are helpful in promoting economic efficiency; Third, equity funds have a positive effect on optimal funds allocation.This paper analyzes panel data of different provinces in the last decade and examines the hypotheses by 12 regressions. The empirical analysis shows the efficiency loss of funds allocation caused by financing structure distortion did exist in China. The scale of financing has no significant effect on economic growth and economic efficiency. However, equity funds significantly promote economic growth and economic efficiency. Credit funds have no significant effect or even have negative effect on the real economy. Finally, based on the empirical results, this paper puts forward regulatory advice that only by improving capital markets and accelerating bank transformation can we improve the financing structure and economic efficiency and implement the innovative development strategy.