The Financial Restraint Analysis In Transition Economy

Although its gradualism reform does not obey the rules of classical economics, China has made surprising success from the planned economy to market economy. During the transition, the institutional change of finance in China does not follow the path"from financial repression to financial liberation"which was suggested bye the classical economist. Looking back the road of financial reform, actually, China has chosen another way-"financial restraint". The institutional change was begun under the circumstances of market incompleteness, political compromise and historical lasting, so the institutional arrangement is the reasonable choice about gradualism reform. The policy of financial restraint has played a key role in the gradualism reform of China. The former research of financial restraint was almost confined to developing countries, and this article tries to discuss the financial reform of China from the point of interrelationship between economic transition and financial development which would make theoretical and practical sense for financial reform of transition countries.This article is divided into four parts.The first part introduces the background of this article choosing and the summaries of research from home and aboard.The main point of the second part:"financial restraint"is inherent under the circumstances of gradualism transition. No matter the"financial repression theory"or financial liberation, both of them has caused bad influence for the national economy, but in China the policy of financial restraint played an important role in economic transition: (1) Saving mobilization .(2)The institutional exchange between weak budget and strong finance(3)To show the importance of national ability. All of these firmly secure the economic transition of China. The financial restraint is the second best choice.Finance restraint brings rent effect for banks and corporations and issuing benefits of money for government. It stimulates the growth of GDP, meanwhile, creates some bad effects: (1) Efficiency lost of source arrangement. (2) National bank non-performing bonds increases under the constraint of dual-goals. (3)The effort to search for bank's own benefits leading to accumulating of finance risks. So the strength of finance constraint must be moderate.Based on the discussions above, the last part tries to make further research about gradualism transition from the angel of view of finance. The conclusions: (1) Radical reform and gradualism reform are totally different and both of them will form special and vivid risk-benefit style. (2) The special role of state-owned department during the period of transform and budget trouble because of market reform are the basic engine to affect finance regulations.(3) Finance restraint is the foundation of gradualism reform.(4) Finance restraint goes at the price of efficiency lost and accumulated risks.