Financial System Changes, The Rule Of Law And Financial Development

The 30 years of opening and reform in China witnessed great achievements in many fields,which are especially splendid in the environment if global financial crisis.However,it is commonly accepted the financial law system is under developed,which left the development of financial industry in China a mystery.In this special period,it is of great importance to calm down and reconsider such development from the perspective of a theorist.Assuming the financial development is critical to economic growth,this article focuses on the essentials to the financial development other than the relations between the financial development and economic growth.Based on the research on many documents of the financial development theory,it is concluded that the increase of number of financial institutions and the scale of financial industry is the result of the financial development,whereas the diversification of function of financial industry and the improvement of financial system is the essence of the financial development. This demonstrates the system and laws are important to the financial development.Based on the theory that the system and laws are important to the financial development,this article further analyzes the intrinsic functioning mechanism of system and laws on the financial development.By comparing the statute law system and the case law system,it is concluded the later is of more adaptability.However, the statute law system in China requires a unique adaptability for the financial market,etc.rules and policies of low legal effect are used to meet the need of financial market for law system.This is a substitute for judge-made law and is more economic.But such law system has negative impact on the financial system and costs more,but earns less.This article also discusses the importance of law system for the financial development and the relationship between ruling by law and evolution of system. From the perspective of economics,ruling by law is an economical structure and a model to rule the society with lowest cost,in a way of motivating public to create wealth by affirming the ownership of property,to produce other than to obtain by punishing default and other behaviors detrimental to the public interest.Meanwhile, law system should leave space for further evolution from high cost to low which is good for the development of society,growth of growth and improvement of public welfares.System evolution is the replacement,conversion and trade of rules,which shows a process of a more efficient target model replacing a low efficient model.The financial system evolution in China is a combined process based on the knowledge that the target model for a transitional economy is clear.It is in a form of change of coercive system led by government,and in fact a basic need of financial function for system,a process incorporating system transplantation,spontaneous evolution of order and system innovation.In this process,government supplies property rules, regulators supply financial trading rules and regulatory rules,however,the supply of basic framework of ruling by law,legal system protecting the interest of creditor and investor is not enough,and there are more administrative liabilities than civil liabilities.This article argues the financial development in China is mainly attributable to the legal affirmation of property-right reform which gave commercial banks an independent position in the market and assured the return of real financial function through separating banking function from fiscal function.Meanwhile,the introduction of competition among various kinds of financial institutions aligns the interest of individuals and financial institutions.However,the deepening of financial function,scanning efficient customers and the ability of converting savings into investment are still under developed,which is mainly caused by system problems. Due to the short supply of framework of ruling by law and basic legal system protecting the interest of creditor and investor,a phenomenon of loan concentration to big enterprises occurred,whereas,a solution for the lack of financial support for small and medium sized enterprises is to increase laws protecting the interest of creditor and investor.This article also argues the history of international banks' development is a path of banks-insurance-securities,and meanwhile,the financial function is seen as evolved from funding,credit creation to transfer of risk.Transfer of risk is more and more becoming the core function of finance,because thus there are fewest problems in the banking agency function,and lowest cost of verification,simplest function and lowest need of financial policies especially legal rules.As needed by the financial development and economic mechanism,on one hand,commercial banks are shifting from providing service to big customers to providing service to small and medium sized financial institutions,and shifting from relying on credit business and interest income to relying on retail business and fees income,and shifting from a supplier of fund to a provider of comprehensive financial services,on the other hand,commercial banks are putting great efforts in direct financing which needs a restructure of China financial laws in a view to protect the interest of creditor and investor,and application of ruling by law.This article incorporates the evolution of financial system,ruling by law and financial development into one analysis framework.It analyzes the motivation, structure and path of financial system evolution by using many theories including institutional economics,evolution theory,transition theory and legal financial theory,and makes a unique analysis on the unique financial system evolution in China.It also combines the theory "law is important" and the reality of financial development in China,and demonstrates that the importance of ruling by law for China's financial development,and in addition,provides suitable proposals for the design of China's financial system.