Industry Financial Theory And Countermeasures

The supply side approach to analyze the financial system has been at the core of traditional financial theories, while this thesis examine the financial issues in China with a brand new approach, that is, the demand side approach to analyze the financial demand of industry.The thesis provides insight into the theory of industrial finance and seeks countermeasures to the development of industrial finance in transitional China. It begins with the theory of industrial finance and evolves with two themes, that is, industrial finance serves as the link between industrial and financial development, as well as the link of free market finance and planned finance. It is focused on how industrial finance resolves inconsistency and conflict to harmonize industrial and financial development, as well as the development of free market finance and planned finance.Industrial finance is a summary of financial activities rely on and support the development of certain industries under certain industry policy. Certain industries refer to those that are indispensable to the overall development of national economy and have financial demand inconsistent with the development goal of financial system, that is to say, it is very difficult to provide effective support for such industries with free market financial measures.The necessity of industrial finance lies in the existence of market failure in the financial market, which leads to the inefficient allocation of financial resources. Industrial finance measures become more effective at certain stage of economic development, such as at the stage when financial resources are scarce, when economic and financial system is imperfect or when industrial and financial development is severely unbalanced.At the present stage of economic development in China, industrial duality coexists with financial duality, which leads to conflicts between the goal of industrial and financial development. Many industries are rather weak in development and receive little support from conventional operation of financial system. However, these industries play such a crucial part in national stratagem, that it is necessary to establish efficient relation between industrial and financial development through industrial finance to enhance the development of economy and industry as well as to settle chronic inefficiency in the financial system.The paper is divided into three parts and seven chapters. The first part includes chapter one,which summarize the background, approaches and significance of the research. The second part includes chapter two to chapter five,which sets up the theory framework of industrial finance. Chapter two defines industrial finance, based on which indicates the necessity of the existence and development of industrial finance, the classification of industrial finance, the relation between industrial finance and industrial as well as economic cycle along with presence of industrial finance. Chapter three examines the interaction between industrial and financial development to illuminate that industrial finance serves as the link between industrial and financial development. The interaction further strengthens the necessity to develop industrial finance. Chapter four reviews the role of government in economy and finance, explains the necessity and limitation of financial policies, and states that industrial finance supports industrial development through free market financial measures under policy guidance to overcome the limitation of financial policies, thus serves as the link between free marker and planned finance. Chapter five analyzes the development trend the limitation of industrial finance based on the relation of industrial finance and economic stage. Industrial finance is the outcome of certain economic stage, only plays a specific role in a certain period, and eventually withers。The third part includes chapter six to chapter seven,which deals with the significance and countermeasures to develop industrial finance in China. Chapter six demonstrates the high correlation between economic and financial development in China and that it is the specific requirement of economic and financial development to develop industrial finance at the specific stage. Chapter seven illustrates the specific pattern of industrial finance in transition period, and the possible hindrance and cost to develop industrial finance, based on which points out the conditions and system for the development of industrial finance to maximize industrial development with minimized cost.With systematic study of the theory and practical countermeasures of industrial finance, the paper comes up with the following conclusions.1.Industrial finance is the outcome of large-scale, standardized production. The dominant industry is the major carrier for the existence and development of industrial finance, while the new industry brings forward new issues on the development of industrial finance, which is closely related to economic cycle, economic stage along with industrial cycle, and show different characteristics at different stages.2.Industrial finance is the link between industrial and financial development, and serves as the important measure to mitigate conflicts between the goal of industrial and financial development so as to harmonize both sides. Industrial finance also serves as the link between free market finance and planned finance. On one hand, the measures of industrial finance is affected by the policy, on the other, it is necessary to utilize various free marker financial instrument. How to harmonize the relation between the two side is the difficulty and the issue to be resolved in the study of industrial finance.3.The development of industrial finance contributes to the adjustment of industry structure and the innovation of financial system. However, it can also bring tremendous cost, which includes the cost of financial and industrial development. The cost of financial development refers to the intensification of financial duality, the strengthening of financial restraint and the magnification of financial risk. The cost of industrial development refers to the hindrance to industrial development due to inefficient protection and unfair competition when the measures of industrial finance are applied to sustain the export orientation import substitution strategy.4.The development of industrial finance plays a crucial role at the early stage of economic development, but the role gradually wanes and eventually withers as the economy improves. However, free market cannot entirely replace industrial finance because of the existence of market failure. After the role of industrial finance withers, free market and financial institutes play a decisive part in the allocation of financial resources, while the government will still have certain influence over the process.5.The duality of economy and industry determines the duality of finance. Non-equilibrium development strategy should be adopted in order to realize the transformation of industry structure from duality to unity and the leapfrogging development of economy, which determines that the financial development is non-equilibrious in transitional China. In such case, the emergence of new financial duality is inevitable. The new financial duality refer to the usual financial system which operates in the mode of free market economy and the unusual financial system which operates in the mode of industrial finance, the corresponding finance market is also independent of each other. At the same time, the unique development pattern of different industries raises different requirement for the development of industrial finance, which can only be satisfied with different financial instruments.