A Study On Private Economy Financing Institution

Private economy is an economic form, the operation of which entirely depends onmarket rules. Profit is its only goal. The managerial structure of private economy is based on pure interest relationship, and its property right is clear. Private economy has a more flexible inspiration system and more flexible internal mechanism to distribute human resources and income. Private economy's development and strengthening is not induced by state plan but by market and it accords with the state's market-oriented reform. During the past two decades, private economy has made great contribution to satisfying market demand, improving people's standard of living, booming market economy, prompting employment, adding tax, accelerating the evolution of industrial structure and economic institution.Private economy financing depends on financing institution. Financing institution's prompting economic development relies on financing structure and financing efficiency. The main function of financing institutions is by anticipating transaction rules to realize the transaction goals of the respective parties at the lowest cost, reduce the various risks in the course of transaction and furthermore, to accelerate the development of the principal market. On observing China's financing institutions, we may find that it can not satisfy private economy's financing desire in their financing structure and financing efficiency, for example, its present functions in reducing price, price-finding, risk-shifting functions, etc. cannot meet the need of the market. So innovating financing institution in China has great significance, and private economy can obtain interests from it, namely, it can get more financing supports than before.The enterprise financing theory originates from M-M theory in western country, and evolves into three schools: the principal-agency theory, the asymmetric information theory and control rights theory on enterprise financing. Some Chinese scholars have carried out positive analysis on financing problems of private economy and drawn some estimable conclusions.The course of China's private economy development can be divided into three phases: germination phase, twisting phase and high-speed phase.In the germination phase, the state recognized individual economy as thesupplement of public ownership economy, but did not formally recognize the private economy. The state arranged some financing institutions beneficial to individual economy such as tax, credit, but the institutional evolution mode was government-led. Internal financing was the main type, credit was only a supplemental type at that time.In the twisting phase, the state recognized the private as the necessary and beneficial supplement of public ownership economy. The state continued innovating institutions such as tax and finance to prompt private economy financing. After 1989 private economy was affected by surroundings, and met twisting development.In the high-speed phase, the state clearly recognized private economy as an important part of social market economy. The state considered private economy and state economy as equal market principal part on tax and strengthened financial institutions innovation, and formed rather perfect financing institutions. Theoretically, private economy has obtained all opportunities including stock market, and the state set up the small-medium-sized enterprises' stock board which served for the small-medium-sized enterprises in 2004. Financing institution innovation has accelerated private economy's development which contributes to national economy more than before, so the people's evaluation of private economy gradually turned into positive.The financing problem of private economy has lasted for a long time, and it resulted from multiple factors. The lagging behind of the institutional innovation of the private economy is the key factor. Private economy's property right institution has its oneness and vagueness. When private economy expands to a certain extent, it will face the problem of management revolution and property right dissension, and this will affect private economy's further development. The deficiency of property right in management system will bring on the lack of manager's capability and the increase of decisions risks. There is a conflict between private economy's habit of closing core information and capital market's need for disclosing core information, and the conflict would result in the increase of financing cost and financing difficulty. At the same time, private economy has not constructed and maintained its sincerity institutions for long time, which resulted in its lower sincerity level. This also adds cost and difficulty to private economy financing.The higher proportion of internal financing in China's private economy lies in the lower capital availability from the state economy system and the insufficiency of selfaccumulation. These result in the limited potential of internal financing, and the higher proportion of internal financing hinders private economy's transition toward normalized management.External financing is an important and reliable financing channel when private economy strengthens. Private economy is restricted by many factors in the credit market in China, such as ownership-based discrimination and size-ownership discrimination. In stock market, the main board market mainly serves for the state economy, and there are many restricted factors such as the limited market capacity, miscellaneous examination and approval procedures and the reform of joint-stock company in the small-medium-sized enterprises' stock board. The state is strict to informal finance for its abnormal operation and higher risk, so it is unsuitable to solve the difficulty of private economy financing on relying on informal finance.The deficiency of macro institution is an important external factor in adding difficulty to private economy financing. On one hand, many active laws and rules about private economy are not perfected, on the other hand, there are still many conflicts among these laws and rules. These disharmonies form the discrimination against private economy. Furthermore, that laws and rules lack administration-availability is also another important factor that results in the difficulty of private economy financing.The lagging behind of social service industry results in the fact that private economy as a low potency cannot obtain the support of social service system. This also increases its financing cost, restricts its financing opportunities, and adds its financing difficulties.The traditional informal institution which regards social ideology as core have stronger piety to the state economy, so its evolution is difficult, and its evolution time is longer. The lagging behind of informal institution's evolution increases the difficulty and lag time of financing institution's evolution of private economy, adding difficulties to its financing.To solve all the difficulties of private economy financing we should consider them as a whole, including the evolution of private economy institutions itself, the evolution of macro surroundings and the construction of soft surroundings.The evolution of property right institutions is mainly to make property right more clear, and the property right should be clear to nature person. Now family enterprisehas its rationality and vitality, but there still exit many factors which hold back the development of private economy. It is certainly inevitable to build up a modern enterprise system, and the evolution toward modern enterprise system should be induced by market. Private economy's institutional innovation mainly lies in managerial revolution, by which excellent professional managers can be introduced into private economy. The main content of private economy's sincerity institution innovation is to construct entrepreneur's sincerity systems.The innovation of direct financing institutions includes the innovation of the stock market and the bonds market. The innovations consist of such as modifying laws and rules which standardize the stock and bond market, shifting supervision models of the stock and bond market, founding the multi-structure of stock and bond market. The innovation of indirect financing institutions relies on the system reform of active banks and founding private banks. The former should become real commercial bank, and deal with credit on market rules, the latter should be restricted to serve private economy, and the above two measures are the most direct and quicker than other measures which can take effect on private economy. At the same time, the state should perfect other financing institutions such as collateral, lease and venture financing to serve private economy together.To change the improper cognition of traditional social ideology about private economy, the state should supply more investment to ideology which can recognize the private economy correctly. The state should also lead people to recognize the private economy correctly, give the private economy's employees suitable social status, and offer more opportunities to participate in political, economic and cultural decisions to private economy's employees. Private economy should better its social image by making greater efforts to enhance their identification and acceptance by people through its market behaviors in accordance with market economy principles and its non-market behaviors in accordance with the social morale.Economic globalization is a trend, it influences our country in multiple aspects. Nowadays opportunities and challenges co-exist. Under this macro situation, private economy can share national treatment, and has more chances to make use of foreign capitals. But foreign capital may threaten the survival of private economy, and will add further difficulties to private economy financing. At the same time, foreign capital's strict rules of credit and open information will bring on tremendouschallenges to private economy, and compel it to construct and perfect modern enterprise system. Only by the cooperation of the innovation of its internal institutions and the innovation of its external financing institutions can private financing institutions meet the challenges posed by economic globalization.