| Finance is the core of economy, not only for country and social organization, but also for corporation and family. We cannot study on economy without finance, while finance depends on economic environment conversely. With the globalization of economy and informatization of communication, the world becomes smaller and smaller. And finance links oneself to the corporation that even cannot be seen. Development of finance and prosperity of economy are accompanied by the scientific and technological revolution. Network technical revolution is in process with new economy and new finance. Financial innovation is colorful and endless. In the second half of 20th century, the modern financial theory was continuously being developed with the demand of new economy and new finance, and absorbed a large number of elites of subjects on science, engineering science and social science to work at researching on financial theory and practical innovation. The innovation of the theories of investment portfolio, capital and asset pricing, corporation governance, risk management and financial efficiency creates a group of winners of the Nobel Economics Prize.The globalization of economy implicates the capital market integration. New finance injects vitality into economic prosperity, and also breeds risks for economy. Therefore, new finance is a double-edged sword. To prevent and reduce risk effectively and tap potential of capital market fully need deep understanding of financial complexity, quantum analysis of non-rational financial market, accurate valuation of financial risk and technical promotion of financial efficiency, which is the foothold of this paper, whose research isbased on the vibrant emerging capital market------China's financial market.With the financial efficiency upgrading being the main route of research, this paper analyzes the capital market through the China's financial market, and studies on the external complexity characteristics (or non-linear characteristics) and the internal changing rules of financial market by using the method of random analysis and econometric mathematical model. The object is to explore the efficient way to upgrade the China's financial efficiency from technical level based on the analysis of the structure, operation mode of China's financial market, financial eco-system and financial innovation and reform that are relative to the stock market.This paper insists the dialectical and historical materialism, scientifically analyzes the reason for the emergence, development and existence of financial market, reexamines and determines its definition, features, classification, components and functions, and comparatively studies on the structure and operation mode of financial market. With cautious examination of China's financial market, we find the structure of China's financial market is different from other international capital markets. It's not the market-based or bank-based structure, but the government-dominated pattern of banking and security market, which is the feature of China's financial market and also the inevitable choice of China finance in the current economic environment. Aiming at the operation mode of China's financial market, we believe it is integrated operation model transiting from separated to universal operation in the legal frame work of separated operation with the universal operation being the trend of development. With the China's capital market being gradually developed and financial market being constantly perfected, this operation mode is necessary to remain for a period, yet universal operation is premature. However, separated supervision is obviously defective and unfit for the comprehensive operation mode of China finance. In this paper, we will explore a best choice, cooperative supervision on the premise of not changing the legal framework of separated operation.Uncertainty is an immeasurable risk, while risk is a measurable uncertainty. Uncertainty, risk and financial efficiency are inextricably linked. As a medial concept, uncertainty brings not only excess earnings, but also incalculable losses for people. Risks from market, credit, operation, liquidity and law that can not be eliminated need to be managed. Efficiency means unpredictability since predictability will make you be in a disadvantageous position. In this paper, we believe uncertainty can reduce risk, and help to promote efficiency. Uncertainty can also provide space for financial innovation, and create opportunities for you. Financial efficiency reflects in system (or macroscopic), individual (or microscopic) and market (or meso), all of whose core are resource allocation. After deeply understanding the uncertainty, risk and financial efficiency and their inter-linkages, this paper focus on analyzing the current liquidity risks in China, which are liquidity surplus, hidden dangers of liquidity shortage of transaction and liquidity black holes crisis. Although there is hundreds of paper about efficiency of China's financial market, unified understanding has not been reached. That may be because of the difference among research methods, or data choice, or researchers' understanding about efficiency. However, it's necessary to give a basic judgment on China's financial market as efficiency directly influenced the control of risk and reliability of price mechanism. And the result of this paper is that the behaviors of the two financial markets Shanghai stock market and Shenzhen stock market in China are similar, but differences also exists that efficiency of Shanghai market is superior to that of Shenzhen market. There is an obvious complexity characteristic in China's financial market, but it achieves or tends to achieve an overall weak form efficient.Financial market is a complex adaptive system, which is decided by the limited rationality of market participants. Just the limited rationality that sometimes even shows as the movement and proliferation of non-rationality make financial market transforms from reason complexity to result complexity. This paper applies the basic opinions about complex adaptive system of John Holland who is pioneer of complexity and non-linear science to descript the complexity of financial market and analyze the reason complexity. The indicator of realizing the function of resource allocation is price of financial asset, through which complexity of financial market shows out. Therefore, in this paper we explore the result complexity of financial market closely around the price or return of financial asset. The result of empirical research shows that financial market has clear complexity characteristic of non-linear: first, price series follows non-stationary I(1) process, and rate of return follows the first-order de-correlate stationary process; second, return distribution departures from normal distribution, and has features of peak, asymmetry and heavy tail; third, the rate of return series is second-order correlate, and has clustering of volatility effect; fourth, the price series show the long memory characterization and has state durability; fifth, price of financial assets does not follow random walk or standard Brownian motion completely, and multi-fractal characterization exists in financial market. Meanwhile, through applying the mathematical model to analyze the financial complexity problems, we research from 3 aspects below: first, using the heavy-tailed index to valuate the financial risk accurately; second, make quantum analysis of non-rational factors of financial market through spectrum analysis; third, building the multi-fractal model to understand the financial complexity deeply. In this paper, we dialectically think that complexity increases the difficulties for people to understand and control financial market. But complexity supports the relative stability and builds the innovation space of financial system and also promotes the evolution and upgrading of financial efficiency.We cannot involve all of the aspects of China's financial reform. We empirically analyzes the financial innovation relative to China's stock market, which includes the comeback of warrant accompanied by reform of non-tradable shares, consistent interest rate policy of the people's bank of China to regulate the macroeconomic structure, implement of managed floating exchange rate regime which is based on the supply and demand of market and referring to the currency basket for regulation, and shareholding reform and listing of state-owned commercial banks. The empirical result shows that there is interaction between China's stock market and warrant market, and it seems stronger to stock market. In the meantime, volatility spillovers effect exists in the two markets, which is more obvious to warrant market. China's stock market shows different reflections to the 12 times up-regulation of deposit and loan rate from 1993 to 2007, the first 4 times of which present unfavorable factor and the last 8 times of which present favorable factor. But in overall rising of deposit and loan rate has inhibition effect on stock market that becomes gradually obvious with the consistent application of rate policy. Before the exchange rate reform in July of 2005, there is positive correlation but not co-integration relationship between stock and exchange market. And after the exchange rate reform, significant negative correlation and co-integration relationship are found between stock and exchange market. Volatility spillovers effect exists in the two markets, especially more significant after the exchange rate reform. The reform of the four state-owned commercial banks, Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Bank of China promotes the prosperity of China's stock market and the development of financial market. Especially the listing of Industrial and Commercial Bank of China, China Construction Bank and Bank of China expands the scale of China's financial market, optimizes the structure of capital market, establishes the value investment philosophy of stock market, and enhances the stability of financial market. All in all, China's financial reform upgrades the degree of market orientation. And the formation mechanism of price of financial asset tends to be reasonable. Financial resource allocation becomes more efficient that is helpful for the balance of economic system. Faced with the financial liquidity risk, low efficient of commercial bank and problems of high saving rate and financing difficulties brought by the indirect financing-based, we design a financial instrument of optional and exchangeable bond and use reform of the four state-owned commercial banks as vectors to upgrade China's financial efficiency basically from technical level.Efficiency is infinite, and the exploration of financial efficiency is also infinite. Pursuit of efficiency is a country, a social organization, a corporation and even a family's instinct. Financial complexity breeds the risk, but also boosts the promotion of financial efficiency. Deeply understanding financial complexity, exploring the law of financial market and activating financial engineering's creating in China are the inevitable choices for preventing and reducing risk of financial system and promoting financial efficiency.
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