The Development Research Of Local Financial Holding Company Based On The Perspective Of Financial Decentralization

In recent years,with the process of industrialization and urbanization in China,the local financial holding companies has increased rapidly in both quantity and scale.The outstanding performance is that 31 provinces have set up financial groups across Banks,securities,insurance,guarantee,trust,leasing and even Internet finance.Their financial assets have been constantly expanded,and they have gradually developed into a three-way race against the general industry,commerce and infrastructure industry in local state-owned assets.The close connection between local financial holding company and local state-owned enterprises in terms of assets and business has become an important force for local governments to control the economy and promote regional economic development.Meanwhile,the property of financial groups makes them assume responsibility of meeting the financing needs of local governments and become a tool for local governments to intervene finance.On the one hand,the development of local financial holding company promotes the development,innovation and experiment of local finance,which has an important impact on the marketization and privatization of Chinese finance,and makes the financial transformation of China have significant local and governmental characteristics.On the other hand,while local governments are competing to promote the development of local financial holding companies in order to promote economic growth,their intervention also leads to greater agency problems of local financial holding company,accompanied by serious financial risks.In addition to the corporate governance problems of traditional financial holding groups,more important are the complex ownership control and related transactions between local financial holding companies and local state-owned enterprises,as well as the special governance problems caused by the blinding financial expansion of local governments.Specifically,it comes from the bad assets of local state-owned enterprises caused by industrial structure imbalance and overcapacity in the process of industrialization in China,and the transfer of debts of local governments,especially local financing platforms,to local financial holding companies in the process of urbanization.How to understand the rapid development of local financial holding companies and the development problems arising therefrom,and how to build a financial supervision system to prevent risks,we urgently need to conduct in-depth research in theory and practice.In fact,the development of local financial holding company indicates that China's financial development has been marked by a trend of decentralization from centralized power to local power.The form change of financial groups by local government is highly consistent with the development of financial decentralization in China.Local government control has experienced the reform of the early intervention of financial credit to control city businese bank,then to form a local financial holding company recently,corresponding to the third stages in the evolution of the financial decentralization in our country,that is,from the beginning of the local financial irregularities in the early days the separation of powers,gradually turned to the mainly risk prevention to control,and final adjustment to the current local financial development and risk prevention of moderate decentralization.The theory of financial decentralization starts from the dual perspective of local government financial competition and risk prevention to study the optimal allocation of financial capital and the implementation of financial groups'rights in China's economic development process.The theory of financial decentralization is a feasible analytical framework to study local financial holding companies.This paper,from the perspective of financial decentralization,makes an in-depth study on the development of China's local financial holding companies,trying to find the internal logic behind the development of local financial holding companies.And based on this,this paper puts forward effective suggestions on the standard development and supervision system construction of local financial holding companies.However,in this case,on the one hand,China has not made a clear definition of local financial group,and the development and supervision of local financial holding company are in a groping state.On the other hand,no matter in the academic circle or in the practical field,most attention is focused on central financial group,and private financial group.By constrast,local financial holding companies are rarely discussed separately.However,according to statistics,nearly 60%of local financial assets exist in the form of local financial holding company,which has become the main form of local financial expression.Many scholars have done a lot of research on the financial holding group,mainly focusing on the development,governance and supervision of the financial holding group,and mostly discussing the perspective of corporate finance.However,the research on local financial holding company is relatively few and mostly elaborated in nature.It mainly focuses on the formation motivation and mode of local financial holding companies,lacks theoretical analysis and empirical research based on normative economics,and does not discuss the literature that analyzes the development of local financial holding companies from the perspective of financial decentralization.Therefore,my paper takes local financial holding companies as a development stage of local finance.Based on the characteristics of local financial development and general financial groups in China,local financial holding companies are accurately defined and comprehensively calculated,and their development path and potential risks are explained from the perspective of financial decentralization.What I have researched is not only an effective supplement to existing literature,but also has important practical significance and theoretical value.The 'promotion championship' incentive system designed by the central government directly promotes the formation of local government competition.Then the fiscal inadequacy caused by fiscal decentralization and the economic growth model driven by local investment have transformed local government competition into local government financial competition,namely the pursuit of financial capital.In consideration of the degree of nationwide financial decentralization and local characteristics,the optimal local financial decentralization mode selected by local government to promote economic growth is embodied in evolving of local financial forms and organization of local financial holdings companies.Further,the degree,mode and goal of local financial decentralization determines whether or not to build a financial holdings company and control mode and service orientation of the company.In view of this,this paper studies the building motivation,control mode and economic effectiveness of local financial holdings companies from the overall approach of 'status analysis--problem presentation--related literature review--theoretical framework and index construction of financial decentralization--core issue:the formation,control and economic role of local financial holding companies from the perspective of financial decentralization--interpretation and test of the core issue of this paper through theoretical model and empirical research--related policy suggestions'.Firstly,this paper makes a statistical analysis of the development strength and current situation of local financial holdings companies,and concludes that the development of local financial holdings companies in the past decade has the following characteristics:(1)The number and size increase dramatically and the coverage expands gradually.By 2016,the number of local financial holdings companies reached 377,an increase of more than three times compared with 2006.Assets also increased 14.6 times from 1.73 trillion to 25.25 trillion.Only 20 provinces had local financial holdings companies in 2006,and by 2016 it had expanded to all 31;(2)Financial assets controlled by local financial holdings companies have grown rapidly,which has increased from 0.42 trillion to 8.62 trillion in the past decade,an increase of more than 20 times.Due to the financing demand generated by political incentives of local governments,the growth of financial assets was mainly reflected in Banks,trust and other direct financing financial institutions.By 2016,nearly 60%of local financial assets had been in the form of local financial holdings companies.(3)Leverage continues to go up while business performance does not squat down.The asset-liability ratio of local financial holdings increased from 58.3%to 65.9%,showing that its risk was far higher than ordinary enterprises.Meanwhile,the return rate of assets decreased from 2.6%to 1%,which was far lower than that of private enterprises and even less than ordinary state-owned enterprises.These facts prove that besides the principal-agent problem of general state-owned enterprises,the property of financial holdings cause more serious intervention of local government.(4)Local financial holdings has significant differences in regional development.On the one hand,local financial control is mainly distributed in coastal economic and financial developed areas,such as east China,and mostly controlled by provincial governments.On the other hand,due to the influences of fiscal situation,economic structure,national financial decentralization degree,regional financial development and other factors,the optimal strategy selection of local financial decentralization is different at all regions and levels under the 'promotion championship',which is directly reflected in the differences of the development modes of local financial holdings,finally some phenomenon appears like the worse the fiscal situation and the higher the proportion of state-owned economy,the stronger the local financial control over the subordinate financial institutions,and more inclined to direct financing financial institutions.Second,the theoretical framework and indicators of financial decentralization are constructed.Financial decentralization is defined as the allocation result of financial resources control right between different levels of governments,which is caused by the stratification of the discretionary financial power of these participants from top to bottom in order to realize their own interests.Financial decentralization is divided into two levels:financial decentralization ?(central decentralization policy)and financial decentralization ?(local decentralization policy).Financial decentralized decision is a top-down sequential game:the central government first makes a decision,based on which local governments choose their own strategies.The central government chooses the strategy financial decentralization ? and keeps a proportion financial control rights.Then local governments choose the strategy financial decentralization ? based on the residual 1-a financial rights.But the logic of behavior is down-top:the central government first observes local government strategy set and considers possible outcomes of its own strategy,on the foundation of which makes a self-interest maximization strategy choice.Namely,based on the financial decentralization ? strategy set {ai},the central government observes local government strategy {bk|a=ai},predicts its own pay s=s{ai,bk},and then choose ai to achieve the optimal payment.Based on this,the paper construct the national financial decentralization and local financial separation of two level indexes,the comprehensive description on the financial decentralization evolution and present situation in our country,the former reflects the financial decentralization final results,which reflect the financial decentralization ? in local government decision-making.Based on this,the paper makes comprehensive description on the financial decentralization evolution and present situation in our country,by constructing indexes of the national financial decentralization level that reflects the final results of financial decentralization and local financial decentralization level that reflects the local government decision-making in financial decentralization ?.Based on the previous research and the Financial Decentralization Theory and the Tournament Theory,this thesis revealed three core issues:(1)Whether the organization of local financial holding companies is to meet the financing demand of the local government or the development motivation of companies?(2)Why are there any significant differences in different local financial holding companies?(3)Is local financial holding company promoting more than local financial institutions in local economic growth?And what is the mechanism of it?The main conclusions are as follows:Firstly,the direct purpose of local government to set up local financial holding company is to finance local government,and the local government decides the founding and ranking of local financial holding company is based on the benefits of control and the different efficiency between state-owned enterprises and non-state-owned enterprises,furthermore,the most key factor is the proportion of state-owned economy which reflects the capital demand of state-owned enterprises.Secondly,as for the financial holding company,more than ninety percentage of them are founded as financial non-holding companies at first,then gradually turn to local financial holding company.Therefore,when studying the financial holding company,focusing on the need and willingness of local government are important,the development requirement of company is also can't be ignored.The financial holding companies are classified into two types by the methods of establishment and the purpose of founding:local government constructs for financing(direct-controlling type)and company forms for own development(indirect-controlling type),but no matter what ways the financial holding companies can be launched and adopted,the decisions are still on the local government's hands.Especially,under the situation of the lack of financial resources,the residual financial power of the local government is the most key factor.Thirdly,over ninety-five percentage of financial holding companies is absolutely controlled by the local government,and over seventy-five percentage of the local financial holding companies is totally controlled by the local government,and the mean control of the local government is ninety-four percent,and no significant differences in the controlling of financial holding companies by the local government.Fourthly,the controlling ways of local financial holding companies control for financial institutions are influenced by the governmental rank and the local endowments.The financial holding companies that are controlled by lower level local government have greater controlling willingness to the subordinate financial organizations;And the bigger proportions of the regional own-stated economy,the financial deficit and the local residual financial power will cause stronger control for the local financial holding companies;The local residual financial power and the developed level of finance will increase the financial controlling leverage significantly;Compared with the direct-controlling type,indirect-controlling type of financial controlling leverage is decided by the optimal proportions of the mixture of finance and industry rather than the local governmental willingness.Fifthly,as for the effect of the local financial holding companies to the economy:compared with the single financial organizations,the local financial holding companies have greater impact on the development of the local economy;The local financial holding companies majorly contribute more to the growth of secondary and the tertiary industries,however,not obviously for the primary industry:the promotion of local financial holding companies to the economy is showed by the national departments but made some crowding out effects to the non-national departments;The promotion of local financial holding companies to the tertiary industry are reflected in the financial industry and real estate industry and no other effect on other industries.Sixthly,As for the scale of the local financial holding companies,bigger scale faster growth;as for the type of the local financial holding companies,the financing type is promoting economic growth more than the investment types;as for the establishment time of the local financial holding companies,it has much worse performance during 2007 to 2012 than other periods.Finally,based on the developed situations of the local financial holding companies and the two level financial decentralization patterns,this thesis used the deductions of the theoretical model and conclusions of empirical analyses to provide four policy suggestions for the development of local economic growth and financial stability from the perspective of standardizing the healthy development of local financial holding companies including implement laws and regulations of the local financial holding companies,strengthening local stakeholders protection mechanism,preventing special risks of local government intervention,constructing optimal supervision decentralization mechanism and risk sharing mechanism.