The Impacts Of Chinese Financial Market On Private Credit And Its Scales

Along with China’s economic development, small and medium-sized enterprises are developing rapidly. However, the corresponding financial system has lagged behind. So private financing market develops fast, which has provided financing channels for small and medium enterprises, although it has just started. It is of great significant to explore the influence of financial markets on the private credit market.With respect to the foreign mature private credit market, the domestic private financial market is lagging behind, and the supply and demand sides of funds to those who need more cannot be matched. In order to improve the efficiency of government interest subsidy on loans to vulnerable groups as soon as possible, and to adapt to further development of private economy, the emergence and development of private credit rooted in the development of special trust system of socialism. In this system, a relatively stable mutual relationship through personal relations and geographic locations has been formed, which were also featured by informal loose form of organization, according to both lenders and borrowers oral contract to implement. The incomplete private credit contract has brought a series of problems to the development of private credit:First is the presence of spontaneous and non-normative question of private credit. When funding strand breaks, loan disputes and other accidents have occurred to people’s property and personal safety caused serious harm, affect social harmony. Second, private credit separated from the formal financial system. Private credit and informal credit constitutes a country’s total credit and they are shift in the relationship, which would weaken China’s monetary policy execution and could damage normal financial order. Third, the private credit activity is invisible. Because of its management lacks standardization, private credit would damage to the formal financial sector. Private credit markets activities are often outside the monitor scope of the national industry and commerce, taxation departments, which would result in sales tax, personal income tax collection is difficult, the loss of state taxes, harm the interests of the formal financial sector. Therefore, this thesis is based upon issues such as how to promote the development of private credit by deepening private finance reform and innovation, to improve relevant laws and regulations, to promote transformation of government functions, to deregulate and improve commercialization of private credit development, and to form a dynamic, ordered, pluralistic financial market.This thesis has five sections. The first part introduces the research background, significance, ideas and framework. The second part outlines the definition of private credit, causes, and theory and literature review of private credit, including the dual structure theory, financial repression theory and financial intermediaries theory; and analysis of the financial markets factors which impact to private credit, including the bank deposit reserve ratio, the money supply, inflation and deflation. The third part analyzes current issues surrounding credit risks as along with the emerging private credit market by taking Wenzhou’s private credit market as an example. To examine the influence factors of financial market on private credit, theoretical analysis and empirical analysis methods are applied. Empirical analysis is performed in the fourth part. This research defines two independent variables:the development of financial market and interest rates. On the basis of applied multiple regression model and analysis of measuring software, several conclusions are drew in this thesis including the relationship between the development of the financial market depth and scale of private lending is positive, and increasing interest rates in financial markets will bring increased scale of private lending conclusions. Based on the above findings, relevant policy recommendations are proposed, such as promoting legal construction, improving laws and regulations, strengthening risk control, improving market supervision and promoting market development and expanding investment channels.