Financial Repression, Corruption And Financial Development

China is now in a critical period of economic transition, while the previousmodel of economic development has been insufficient to support the huge economies’rapid development, the demand for a new path of economic growth is very urgent; onthe other hand, the economic reform has become a block for economic development,the direction of reform is still being explored. Corruption and reform are importantissues in the current Chinese society, traditional law and finance theory suggests thatcorruption will hinder financial development, giving the actual situation in China, theconclusion is not that simple. In the Chinese economy which is still characterized byfinancial repression, many financial resources flow to the the state sector, and theprivate sector’s access to credit is limited, such financial resource allocation reducesthe efficiency of resource allocation, is not conducive to economic growth. In thiscontext, the society tried several ways to correct this distortion, and corruption cansometimes be understood as a system with a twist to correct the distortions of anothersystem. This makes it possible the law enforcement would hinder the development ofcertain financial sectors, reducing the efficiency of economic operation.We collected the relevant data at provincial level in China after2000, through atwo-way panel data model we want to study the above questions, and we draw twoconclusions: the impact of corruption on financial deepening is not significant; thecorruption will reduce contribution of private investment.The impact of corruption on financial development is complex. Imperfect systemlimiting the private sector funding money through formal channels, but corruptionmakes the flow of resources from the state sector to the more efficient private sectorwhich always suffers from discrimination, while the role of the shadow banking asnon-formal financing channels has ignored. What can be sure is the current financialsystem itself has an inhibitory effect on financial development.This paper concludes that the anti-corruption work has a good effect on financialdevelopment, but to bring more benefits to society, it should be combined with other related systems.