Diversified Financing Measures under the Background of Financial

Reform

Huang Weilin

Guangdong University of Finance, Guangzhou, Guangdong, 510520, China

Keywords: Financing, Financial Reforms, Diversification, Measures.

Abstract: The reform of China has entered deep-water area. Therefore, conducting financial reforms is influential to

China’s social economy and others fields. The financing system of China was single in the past and has not

positive effect on private enterprises and capitals, thus causing defects in market financing. Therefore, the

financing of China should grasp the developing trend of financial reforms and adjust their financing

structures and channels, thus forming a market financing system with more energy.

1 INTRODUCTION

Currently, China is at an active stage of financial

reform. If China wants to realize promotive

development and occupy more market shares, further

financial reform needs to be conducted. Financial

reform has a lot of influences on China, and the

diversified financing channels are changes brought

by these influences. Formerly, banks are main

financial institutions in China. Therefore, the

beneficiaries of financing are large-scale state-owned

enterprises or state-controlled banks. Through

financial reform, the number of financial institutions

will stimulate the initiative and vitality of the whole

market, thus creating more market value. Therefore,

better exerting the positive influences of financial

reform has much significance to the adjustment of

industrial structure and the sustainable development

of China. Some scientific and effective advice on

diversified financing should be proposed for the

reform of Chinese finance.

2 DEFECTS OF CHINESE

FINANCING SYSTEM AND ITS

INFLUENCES

Although the economic reform of China has made

positive changes of China’s financing system,

traditional economic system, as well as some

contractions and conflicts between financing system

cannot be avoided. Traditional financial system has

accumulated some functional obstacles, hindering

the sustainable development of socialist market

economy. The most important defect of China’s

financing system is the deficiency of functions. In a

microscopic view, the deficiency has caused some

negative influences on the healthy and sustainable

development of the society and the economy.

The current financing system of China has some

functional deficiencies, one of which is the inverse

capital allocation in credit market. For traditional

finance-allocating credit, the financial reform of

China will be bound to have market-based

instruments. For example, China will solve relevant

problems with market-based credit system, which is

the requirement of market-based resource allocation.

China was once a country with planned-economy

resource allocation. After reforms of economic

system, some systematic obstacles can be caused due

to the traditional financing system. Meanwhile, state-

controlled banks and state-owned enterprises have

same nature, so state-owned enterprises can get most

support under current financing system. In addition,

under the pressure of governments, state-controlled

banks can not carry out punishment on the secession

of state-controlled enterprises. In essence, these

problems are closely related to the imperfection of

current social credit system of China. Banks are

gradually becoming the focus point of contractions

in period of economic transition due to large non-

performing assets. The whole society is becoming

low efficiency in allocating resource, and the market

intervention of government does not have a clear

boundary. Therefore, financing deficiency of China

has large impacts on both the macro-economy and

micro-economy. The financial reform and diversified

financing should first solve the potential financial

risks.

202

Weilin H.

Diversiﬁed Financing Measures under the Background of Financial Reform.

DOI: 10.5220/0006022202020205

In Proceedings of the Information Science and Management Engineering III (ISME 2015), pages 202-205

ISBN: 978-989-758-163-2

3 INFLUENCES OF CHINA’S

FINANCIAL REFORM

Recent financial reform of China should mainly form

a package plan that is composed of three support

points. First, the financial reform of China can learn

widely from others' strong points. Foreign financial

management theory has been gradually mature with

long-term financial practice. Therefore, China can

form a more scientific plan of financial reform.

China has some resource advantages, especially in

clients resource, which lays a good social, theoretical

and resource foundation to quicken financial

liquidity. Second, China now adopts floating interest

rate system, which has emancipated interest rate

from governmental control. The basic interest rate

depends on market transaction, which is beneficial to

the normalization of China’s financial market.

Although shadow banking system offers more

financial plans with higher rate of return, all legal

financial products can be protected as the interest

rate control disappears. Finally, China’s financial

reform can reduce the number of financial products

offered by shadow banking system, promoting the

formation of financial regulations and financial

orders. The financial supervision authorities should

grasp key areas in financial market and conduct

corresponding adjustments.

The influence of China’s financial reform will be

profound, although the current financial management

theory can not touch it. However, the financial

industry, especially market financing system will be

greatly influenced, promoting diversification of

market financing. In the past, as an irreplaceable role

in issuing loans, these banks monopolized financing

order, which was not beneficial to capital movement

and appreciation. Through financial reform, the

efficiency of capital allocation will be gradually

enhanced, and more idle funds will be concentrated

on the market, thus providing small micro-

enterprises with more capital and resource support.

In traditional financing system, these small-scale

enterprises are away from normal financing market.

For financial enterprises, financial reform can

facilitate the diversification of financing channels.

Both families and enterprises will consider capital

appreciation plans when they accumulate enough

money, thus promoting the diversification of social

financing. The regulation and management of

shadow banking system should avoid some objective

risks of traditional financing and create a more

scientific way of financing, avoiding illegal

behaviors.

4 FINANCING

DIVERSIFICATION MEASURES

UNDER THE BACKGROUND

OF FINANCIAL REFORM

Under traditional Chinese financial system, the

interest of financing is relatively low. Banks can

attract some clients by issuing loans. However, some

reforms, such as social security reforms, will have

impact on financing with the development of

financial reforms. In the development process of

Chinese economy and financial market, the problems

of financing is resource surplus. China has huge

capital reserves, but few of them are applied to social

financing. Therefore, the financial market of China is

full of potential and attraction.

If China wants to have scientific financing

channels and systems, it should conduct reforms in

key areas. Especially, China ought to grasp the rate

of reform progress. The financing system of China

has developed under the background of planned

economy. Through the reform of socialist market

economy, the market-based financing of China is

gradually forming. However, the regulatory role of

macro-economy still needs to be emphasized. For the

supervision and management of relevant capital

account, economic and financial supervision

departments should have cooperation and

coordination, thus gradually facilitating the reform of

market-based financing.

4.1 Broadening Financing Channels

Traditional financing channels of China was narrow

and constrained since China’s financing had not

adjusted to the financing demands of market. So the

financing efficiency of China was low then. In order

to break the traditional narrow and discriminatory

financing structure, China should reverse unbalanced

financing situation, from which large-scale of state-

owned enterprises benefited a lot. Meanwhile, China

should support microeonomy and offer more capitals

for medium-sized and small enterprises, breaking the

financing difficulties of private economy. For

indirect financing, China’s financial market should

further open up to medium-sized and small

enterprises and give them enough supports and helps.

Broadening the financing channels of private

enterprises can promote the smooth movement of

capitals in microeonomy operation.

Financing policies should incline to medium-

sized and small enterprises with high productivity.

Over the recent years, state-owned enterprises had

weak competitive powers in market economy.

Industrial production value and relevant profits have

Diversified Financing Measures under the Background of Financial Reform

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Diversiﬁed Financing Measures under the Background of Financial Reform

203

continuously decreased, and many state-owned

enterprises and collective enterprise have suffered

losses. Therefore, we should consider current

financing reform and its influences over the

sustainable development of national economy.

Optimizing financing structure can activate

economic growth of China and recombine economic

structure, thus enhancing the quality of financial

assets and avoiding accumulated dilemma as well as

financial risks of state owned economy.

4.2 Adjusting the Ratio between Direct

Financing and Indirect Financing

Recently, China has fast development of direct

financing since the start-up of securities financing.

However, the scale of direct financing is still small,

which shows that indirect financing is currently the

most important financing ways for Chinese

enterprises. Therefore, for the adjustment of

financing structure, we should pay attention to the

unbalanced ratio between direct financing and

indirect financing and strengthen the support for

direct financial. The enhancement of direct financing

can avoid the situation of single financing in the

market. It can also help free movement of

enterprises’ capitals and optimize investment

leverage ratio of the whole society, avoiding more

financing risks.

Currently, the inner structure of direct financing

also needs to be properly adjusted. Now, the

development of bond market is slow-moving while

the stock market is flourishing. The total market

value of Chinese stock market is very huge, but the

circulation of bonds is small, which is only 30% of

the total value of stock market. Therefore,

government should relax restrictions of bonds

encourage good-quality enterprises to issue bonds.

Bonds market of China should have de-

administration, and macroscopic readjustment and

control as well as legal means ought to be used to

restrict the boundary of issuing bonds. Enterprises

bonds should have some flexibility, especially in

issuing price. Enterprises that want to issue bonds

are supposed to meet other restrictions and enhance

their awareness of financing risks. Using bond

financing can help enterprises to have ground-

breaking development.

4.3 Facilitating the Development of

Financing System with Multiple

Channels

China also needs to actively refer to western

experiences on how to support science and

technology intensive enterprises. These enterprises

should developing new financing channels, helping

them raise capitals through issuing bonds or stocks.

Government can encourage the development of

venture capital for science and technology intensive

enterprises and offer investment to some enterprises

with potentials, leaving the market to bear relevant

risks. Given the popular private loans in rural areas,

China can enact laws to scientifically regulate

traditional private loans and give them some

developing space. Supporting policies should be

applied to private low, and scientific supervision

mechanism should be formed, thus maintaining thus

stability of financial order and actively developing

new financing channels. Supporting policies can

reduce the burden on private financing and

emancipate the value-creating power of private

capitals.

5 CONCLUSIONS

The economic reform in China has lasted over 30

years. The industrial structure and corresponding

financial system have undergone huge adjustments.

The reform of traditional financial system based on

planned economy facilitates China to form a socialist

financing system with Chinese characteristics.

Although this financing system is in a preliminary

stage, it still has great significance. Therefore, China

should grasp the decisive decision of financial

reform to push the rationalization of financing

system. The goal of financing reform is not merely

enhancing the role of capital in facilitate social

productivity, but further activating the initiative of

capitals and the dynamics of medium-sized and

small enterprises as well as private capitals. Thus,

more power will be attracted for the sustainable

development of China’s socialist market economy.

ACKNOWLEDGEMENTS

This study is funded by Youth Fund Programme of

Humane Studies of the Ministry of Education,

Construction and Policy of Financial Platform

Based on Strategic and Burgeoning Industries (NO.

13YJC790052).

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