An Empirical Study On China’s Financial Liberalization Impacting Capital Allocation Efficiency

The development and improvement of the financial system provide an important support for the continuous development of the modern economy, however,the promotion of financial liberalization is also a general trend in various developing countries and countries in transition. currently,China’s economic development started to slowdown, the reforms get in tough period, the quality of the financial system reform undoubtedly plays a visual important role in China’s economic restructuring and further development.The paper which is based on the reform of the financial liberalization in various financial fields in our country tried to find out its influence on the capital allocation efficiency in our country.Finally,this paper proposed some possible politic recommendatons for further financial reform coordinated with other reforms concern about the development of real ecomomy.In the literature review, the paper reviewed the literatures concern about financial development theory and its impact on economic growth, found that most of the research is based on the structural index or stock index to study their relation. Some research related to how the part of development of different financial sectors exert influence to the capital allocation efficiency or economic growth, however, few reserch explore the mechanism about how financial development impact on economic growth with comprehensive financial fields.This paper focuses on the analysis of how the financial liberalization exert influnence on China’s limited capital allocation efficiency.In empirical research, mainly contents and ideas of this paper reflect in the following aspects: first of all, this paper measured the changes in the overall efficiency of capital allocation in China,which referenced Wurgler Jeffrey’s model(2000)about the capital allocation efficiency.found that the efficiency of capital allocation has not obvious trend, what’s more,the fluctuation became more intense in the period of international financial crisis or major policy adjustment. Then,this paper measured the capital allocation efficiency of different provinces and cities,through compared and analysed their results,found that the efficiency of capital allocation in different regions of China exist big difference, the capital allocation efficiency of the eastern region is higher than that in the central part, especially higher than that in the western region.Then the paper use the principal component analysis method to construct the comprehensive index of financial liberalization, which is based on the implementation of the reform policies in various financial areas,Although the degree of financial liberalization in China has been steadily improved,there are still some strict financial regulation in key part of many areas of the financial sector.Therefore, the degree of financial liberalization is far from meeting the needs of multi-level capital allocation in our country.Finally, in the case of other factors that affect the efficiency of capital allocation, the impact of financial liberalization on the efficiency of capital allocation in China is analyzed. The empirical results show that the improvement of the degree of financial liberalization in the financial field suppressed the efficiency of capital allocation in China.On the one hand, the quality of financial liberalization is not high, on the other hand, it also shows that other factors that affect the efficiency of capital allocation have a certain impact on the role of financial liberalization, it should be coordinated to promote the reform of all areas in order to play a positive role in the efficiency of capital allocation.Based on the above research, this paper puts forward some possible policy recommendations on the improvement of the financial development and the efficiency of capital allocation in China.