Impact Of Financial Opening On Industrial Structure Upgrading

In recent years,the pace of opening up China’s financial sector has been accelerating.The state has successively issued a series of policies and institutional arrangements to promote the opening up of the financial sector.From the "11 articles on financial opening" to the establishment of the RMB pricing system for oil,from the cancellation of normalized foreign exchange intervention to the complete liberalization of the shareholding ratio limit of foreign financial institutions,China’s financial industry is steadily opening up.On January 31,2021,the CPC Central Committee and the State Council issued the action plan for building a high standard market system,which once again stressed the need to orderly expand the opening of the financial service market.Higher standard financial opening not only introduces a higher degree of market competition for domestic financial institutions and puts forward higher requirements for the production and operation of domestic financial institutions,but also lays an institutional foundation for forcing domestic financial reform and improving the efficiency of market resource allocation.At the same time,China’s economy has entered a new normal of "superposition of three phases",and problems such as urgent optimization of industrial structure,lack of endogenous driving force of economic growth and resource locking are accelerating to be exposed.How to cross the gap of low-end industrial structure and find a new driving force of economic growth has become an urgent need to achieve high-quality economic development.At the same time,accelerating the upgrading of industrial structure and improving the domestic industrial chain and value chain are also important problems to be solved in the process of building a new development pattern with the domestic big cycle as the main body and the mutual promotion of domestic and international double cycles.Financial opening is an important link in the new pattern of China’s comprehensive opening up.Discussing the upgrading of industrial structure under the opening pattern is inseparable from the discussion of the effect of financial opening policy.Then,through which channels will financial opening affect the optimization and upgrading of industrial structure?Since the reform and opening up,especially since China’s entry into WTO,has China’s financial opening significantly promoted the upgrading of China’s industrial structure?At present,the problem of unbalanced and insufficient economic development in China is still serious.Is there a significant difference in C hina’s financial opening level in different regions?Or in which areas of financial openness are there significant differences?Does this difference in the field and level of financial opening in various regions significantly affect the optimization and upgrading of industrial structure in this region?This series of theoretical and practical problems are important issues to be considered and solved in the process of expanding the opening of the financial industry,adjusting and optimizing the industrial structure,and then promoting high-quality economic development.Foreign scholars have studied the impact of financial opening on the upgrading of industrial structure for a long time.As Haggard&Webb(1993)pointed out,financial openness often leads to the rise of cross-border capital flows,and the flow of funds often drives the transfer of production factors and resources,while the entry of new production factors often updates products,leveraging new effective demand,changes the supply structure,and finally promotes the optimization and upgrading of industrial structure.However,some scholars pointed out that there is obvious national heterogeneity in the promotion of industrial structure upgrading by financial opening.Financial opening is conducive to the industrialization process of developing countries,but hinders the industrialization development of developed countries,but produces a deindustrialization effect.With the continuous advancement of China’s financial opening process,all sectors of society began to pay more attention to the role of financial opening in the upgrading and adjustment of industrial structure,and made some theoretical exploration on the mechanism between financial opening,industrial structure transformation and industrial organization optimization,but a systematic analysis framework has not been formed.In addition,compared with the theoretical research,the empirical analysis of the impact of China’s financial opening on the upgrading and adjustment of industrial structure is also relatively weak,and most of the literature has not been able to carry out empirical analysis,especially the literature on the empirical test of the mechanism of the impact of financial opening on the adjustment of industrial structure.The main reason is that people have not reached an agreement on the measurement method of financial openness.In addition,due to the lack of theoretical research and the lack of complete and accurate understanding of the relationship between financial opening and industrial structure upgrading,the choice of empirical methods also faces some challenges.Based on this,this paper first investigates the connotation of financial opening,discriminates the relationship between financial opening and related concepts such as financial development and financial deepening,reviews the relevant theories of financial opening,as well as the general law of industrial structure evolution and industrial catch-up theory,and then systematically expounds the transmission mechanism of financial opening to promote the upgrading of industrial structure.This paper holds that financial opening is a process in which a country gradually weakens and eliminates various obstacles hindering the cross-border free flow of financial elements through legal and administrative means after its economic development to a certain extent.Financial opening is closely related to financial development and financial deepening,but financial opening is a policy tool aimed at eliminating financial inhibition and promoting financial development,and financial development and financial deepening emphasize policy results.The opening of financial institutions and financial markets is the most important symbol of financial opening,but the interconnection of domestic and foreign financial markets is the most direct embodiment of financial opening.There are different types of financial markets,but in essence,no matter what type of financial market,it can be divided into money market and capital market according to the transaction period.Based on the understanding of the concepts of financial market and financial opening,this paper focuses on the term of financial assets,divides the financial market into money market and capital market,and analyzes the transmission mechanism of financial opening promoting the upgrade of industrial from the two paths of money market opening and capital market opening.This paper holds that the money market belongs to the short-term market.The opening of the money market can expand the number of foreign-funded financial institutions,encourage foreign-funded financial institutions to participate in the RMB foreign exchange market and interbank lending market,so as to better reflect the capital supply and demand,so as to promote financial deepening and optimize the financial structure;The capital market is a long-term market.The opening of the capital market can not only provide financial guarantee for enterprise innovation,but also transfer domestic excess capacity and import domestic urgently needed mineral resources and intermediate commodities through the import and export mechanism,so as to promote the optimization and upgrading of domestic industrial structure.The channels of technological progress and trade opening under the path of capital market opening,and the channels of financial deepening and financial structure improvement under the path of money market opening are important channels for financial opening to promote the upgrading of industrial structure.However,the experience and lessons of Argentina and other countries show that radical financial opening policies that are not suitable for their national conditions may also lead to systemic financial risks,which will hinder the transformation and development of their economies and the optimization and upgrading of industrial structure.Therefore,the impact of financial opening on industrial structure upgrading and real economy is not always positive.With the continuous improvement of the level of financial openness,it will inevitably bring the following two results:first,the opening of the capital market and the resulting increase in cross-border capital flows,including both the increase of foreign direct investment(FDI)and the increase of foreign direct investment(ODI);Second,the opening of the money market and the resulting increase in foreign currency deposits and loans of domestic and foreign financial institutions.Based on the above theoretical analysis,this paper further makes a systematic empirical study on the relationship between China’s financial opening and industrial structure upgrading.The main ideas and research conclusions are as follows:Based on the understanding of the concepts of financial market and financial opening,this paper mainly divides financial market into money market and capital market from the perspective of the term of financial assets,and analyzes the transmission mechanism of financial opening promoting industrial structure upgrading from the two paths of money market opening and capital market opening.This paper argues that money market is a short-term market,and the opening of money market can expand the number of foreign financial institutions,encourage foreign financial institutions to participate in RMB foreign exchange market and interbank lending market,so as to better reflect the supply and demand of funds,thus promoting financial deepening and optimizing financial structure.The capital market is a long-term market,and the opening of the capital market can not only provide financial guarantee for enterprise innovation,but also transfer domestic excess capacity through the import and export mechanism,so as to import urgently needed mineral resources and intermediate commodities,so as to promote the optimization and upgrading of domestic industrial structure.The channels of technological progress and trade opening under the path of capital market opening and the channels of financial deepening and financial structure improvement under the path of money market opening are the important channels of financial opening promoting industrial structure upgrading.However,the experience and lessons of Argentina and other countries show that radical financial opening-up policies that are not suitable for their national conditions may also trigger systemic financial risks,which will hinder their economic transformation and development and the optimization and upgrading of industrial structure.Therefore,the impact of financial opening on the upgrading of industrial structure and real economy is not all positive.With the continuous improvement of the level of financial opening,it is inevitable to bring the following two results:first,the opening of capital market and the resulting increase of cross-border capital flows,including the increase of foreign direct investment(FDI)and foreign direct investment(ODI);Second,the opening of money market and the increase of foreign currency deposits and loans of domestic and foreign financial institutions.On the basis of the above theoretical analysis,this paper further conducts a systematic empirical study on the relationship between financial openihg and industrial structure upgrading in China.The main ideas and conclusions are as follows:(1)Firstly,it systematically investigates the statistical characteristics of China’s financial opening and industrial structure change.As mentioned earlier,from the perspective of the term of financial assets,the financial market can be divided into money market and capital market.Accordingly,the investigation of financial opening can also be investigated from the two aspects of money market opening and capital market opening.Therefore,in the third chapter,we first construct appropriate evaluation indicators from the two aspects of money market opening and capital market opening,and use the coefficient of variation method for objective weighting to make a comparative analysis on the overall level of financial opening and the comprehensive scores in various fields of China and various provinces and regions;At the same time,the rationalization level of industrial structure is measured by the deviation index of industrial structure,and the high level of industrial structure is measured by the added value of tertiary industry/added value of secondary industry.The rationalization and high level of industrial structure in China and provinces are compared and analyzed.The results show that from 2004 to 2019,China’s financial opening level shows an overall upward trend,but there are phased differences at the same time.From 2004 to 2011,China’s financial openness showed a rising trend.At this stage,China’s accession to the WTO,continued to fulfill its WTO commitments,expanded the opening of the service industry,and promoted the opening of the financial industry.From 2012 to 2015,China’s financial openness fluctuated.At this stage,China entered a new normal superimposed by three phases,and internal reform has become the main work of social development.Therefore,the opening to the outside world in various fields may fluctuate.After 2015,China’s financial opening-up measures have been accelerating,with a steeper slope.At this stage,China has successively established four free trade zones of Shanghai,Tianjin,Guangdong and Fujian,and tried a large number of financial opening-up measures first,which has played a driving role in promoting the level of financial opening-up throughout the country;In terms of regions,it roughly presents the overall spatial distribution form of high in the East,low in the west,high in the South and low in the north.In terms of industrial structure,from 2004 to 2019,China’s industrial structure has changed from "two,three and one" structure to a new pattern of "three,two and one",the three industrial structures have become more reasonable,and the economic growth has changed from a single drive of the secondary industry to a two wheel drive of the secondary and tertiary industries.In terms of subregions,the rationalization index of industrial structure in the East,middle and West shows an upward trend.However,the western region has the largest increase in the rationalization index of industrial structure,followed by the central region,and the eastern region has the lowest increase.In terms of industrial structure upgrading,there is no obvious spatial distribution law,but since 2012,the rising slope of industrial structure upgrading index in the East,central and western regions has significantly increased.It can be seen that both at the national level and by region,the level of financial openness and the rationalization and upgrading of industrial structure not only show some consistency in change trend and spatial distribution,but also have some different characteristics from each other.This indicates that financial openness does have a certain impact on the optimization and upgrading of industrial structure,but the relationship between the two is not a simple linear transmission relationship.(2)This paper empirically tests the impact of financial opening on the optimization and upgrading of industrial structure and its regional heterogeneity.In the fourth chapter,firstly,based on the Bayesian identification criterion(BIC),this paper identifies and screens the financial opening and many other factors that may affect the upgrading of industrial structure,in order to screen out the "core elements"that affect the upgrading of industrial structure.Through identification,this paper finds that financial opening can not only promote the optimization and upgrading of industrial structure,but also one of the "key" factors among many factors.In addition,urbanization level,business environment,economic agglomeration and power supporting are the core elements driving the transformation and upgrading of industrial structure.Then,based on the screening results of BIC model,this paper further empirically tests the impact of financial opening on industrial structure upgrading.The empirical results show that China’s financial opening as a whole not only promotes the transformation of industrial structure to rationalization,but also improves the high level of industrial structure.The opening of the financial field will significantly improve the quality of mainland assets,improve investment efficiency,and provide high-quality capital guarantee for the technological progress of the real sector.The above conclusions remain robust after replacing the measurement method of key variables,considering sample outliers and replacement sample period,and weakening endogeneity.On the basis of the above conclusions,this paper further uses the traditional division method to divide China into three regions:the East,the middle and the west,and makes an empirical test by grouping regression to investigate the regional heterogeneity.The empirical results show that the empirical results of the eastern and central regions are consistent with the conclusions of the whole sample,that is,the improvement of financial openness has a significant positive role in promoting the rationalization and upgrading of industrial structure in the eastern and central regions;However,the role of financial opening in the western region in promoting the upgrading of industrial structure is not obvious.According to our analysis,there may be two reasons:first,there may be a threshold effect in the promotion of financial opening to the upgrading of industrial structure,that is,the East,middle and West may be in different threshold ranges during the sample period,so their performance is different;Second,the impact mechanism and transmission channels of financial opening in different fields on the upgrading of industrial structure are different,and these transmission mechanisms and channels may not be smooth enough in some areas.In order to test whether the above conjecture is tenable and provide empirical basis for putting forward more targeted policy suggestions,we reflect the relevant empirical tests in Chapters 5 and 6 respectively.(3)It further empirically tests whether there is a threshold effect on the promotion of financial opening to the upgrading of industrial structure,and whether the East,middle and West are in different threshold ranges.Based on the analysis conclusions and reflections in Chapter 4,Chapter 5 selects per capita GDP to measure the level of economic development and uses it as a threshold variable to test the threshold effect.The results show that there is a single threshold(5393500 yuan/person)for the impact of financial opening on the rationalization of industrial structure:when the level of economic development is lower than the threshold,Financial opening will hinder the rational development of industrial structure;When the level of economic development exceeds the threshold,financial opening will become to promote the rational development of industrial structure.There are two thresholds for the impact of financial opening on the upgrading of industrial structure(937300 yuan/person and 111333 yuan/person respectively),which are divided into three intervals:when the level of economic development is lower than the first threshold,financial opening will hinder the upgrading of industrial structure;When the level of economic development is higher than the first threshold and less than the second threshold,financial opening begins to promote the upgrading of industrial structure;When the level of economic development crosses the second threshold,the role of financial opening in promoting the upgrading of industrial structure increases significantly.Moreover,in terms of the sample interval analyzed in this paper,the per capita GDP in the eastern region is 164555 yuan/person,the per capita GDP in the central region is 106859 yuan/person,and the per capita GDP in the western region is 38993 yuan/person.It can be seen that the per capita GDP in the eastern region is greater than the second threshold for the upgrading of industrial structure and greater than the threshold for the rationalization of industrial structure.Therefore,the financial opening in the eastern region can effectively promote the rationalization and upgrading of industrial structure.The per capita GDP of the central region is located in the middle of the two thresholds for the upgrading of industrial structure,that is,the second interval,and is greater than the threshold for the rationalization of industrial structure.Therefore,the financial opening of the central region can also effectively promote the optimization and upgrading of industrial structure,but the effect is not as strong as that of the eastern region.The per capita GDP of the western region is not only less than the first threshold of the upgrading of industrial structure,but also less than the threshold of the rationalization of industrial structure.Therefore,the financial opening of the western region has not effectively.promoted the optimization and upgrading of industrial structure.This explains why,on the whole,China’s current financial opening-up has played a role in promoting the upgrading of industrial structure,but the impact of financial opening-up on the up grading of industrial structure in the western region is not obvious,mainly because the economic development level of most western provinces and regions is low,which leads to the fact that this promoting role has not yet appeared in the western provinces and regions.(4)It further empirically tests the transmission mechanism and heterogeneity of financial opening promoting industrial structure upgrading.It is also based on the analysis conclusions and thoughts in Chapter 4.Combined with the theoretical analysis in Chapter 2,Chapter 6 distinguishes different fields of financial opening,and empirically tests the transmission mechanism and heterogeneity of financial opening promoting the upgrading of industrial structure.The theoretical analysis in the second chapter of this paper shows that the impact mechanism and transmission channels of financial opening in different fields on the upgrading of industrial structure are different.Under the path of capital market opening,it is more likely to affect the upgrading of industrial structure through the two channels of technological progress and trade opening,Under the path of money market opening,it is more likely to promote the upgrading of industrial structure through two channels:financial deepening and financial structure improvement.So,what is the actual situation in China and all provinces and regions?Is the regional heterogeneity examined in Chapter 4 also related to the poor transmission channels in some regions?In Chapter 6,we use the intermediary effect model to further test this.Specifically,Chapter 6 first tests the heterogeneity of transmission mechanism under different paths of financial opening.The research conclusion shows that the opening of money market often drives the optimization and upgrading of industrial structure through financial deepening and financial structure optimization,while the effect of trade opening and technological progress is more obvious under the path of capital market opening.The specific results are as follows:under the path of money market opening,in the process of money market opening promoting industrial rationalization,the intermediary e ffect of financial structure optimization and financial deepening accounts for 52.91%and 16.73%of the total effect;In the process of money market opening promoting industrial upgrading,the intermediary effect of financial structure optimization and financial deepening accounts for 9.44%and 35.52%of the total effect.Under the path of capital market opening,in the process of capital market opening promoting industrial rationalization,the intermediary effect of trade opening and technological progress accounts for 40.11%and 6.94%of the total effect;In the process of capital market opening promoting industrial upgrading,the intermediary effects of trade opening and technological progress account for 58.09%and 9.65%of the total effects.This result is consistent with the theoretical analysis conclusion in Chapter 2.Secondly,the regional heterogeneity of conduction mechanism under each path is tested.The empirical results show that in the transmission mechanism of capital market opening in Central China to promote the rationalization of industrial structure,the intermediary effect of trade opening and technological progress accounts for 32.33%and 17.73%of the total effect,but the intermediary effect of capital market opening in Central C hina to promote the upgrading of industrial structure is not significant.Other transmission channels,such as the impact of financial deepening and improvement,financial structure optimization channels on the rationalization of industrial structure in the central region,and the channels of trade opening and technological progress in the process of promoting the upgrading of industrial structure,are in a state of obstruction and failure.In comparison,even if the mechanism of intermediary channels is played,its effect is relatively small.Based on the above research conclusions,the seventh chapter puts forward some targeted policy suggestions,including:paying attention to the quality of economic development and taking the road of coordinated development;Put innovation in a prominent position in the economic development strategy;Build a regional financial support system to break through the financing difficulties of emerging industries in the central and western regions;Actively learn from international experience,adhere to step-by-step financial opening,and maintain the rationality of the opening order.