System Constraints Of The Financial System Changes

Financial institution in China is undergoing profound changes. These changes embody themselves both in development of financial organizations and changes of institutional constrains. Given the development of financial organizations, the financial institutional changes in China are interrelated with the institutional constrains. An analysis of these constrains could be helpful in the understanding of financial institutional changes in China. Under this guideline, this thesis gives an analysis on credit and law, government behavior and financial property rights arrangement as well as their influences on financial institutional changes in China. First, this thesis analyzes the role of credit and law in financial institutional changes. Based on the theories of self-enforcement of contract and law and finance, a model is developed to understand contract enforcement in financial market. The conclusion shows there will be fraud in financial market when information and law are incomplete, which financial market withered. An improvement of credit system and law will promote the changes of financial institution.Second, influence of government behavior is analyzed. A distinct feature of financial institution changes in China is government's direct control. In the light of a dynamic utility function and cost-return trade-off, government directs the changes of financial institution. Owing to different time paths of marginal utility curve, when the central government is withdrawing from the direct control on financial institution changes, local governments are trying to strengthen it, however.Third, this thesis analyzes the influence of financial property rights on the financial institution changes. Different transaction costs of the state-owned and the informal financial property rights lead to differences in completeness of property rights and fund allocation efficiency. A direction of financial institution changes is to establish a completely defined and efficient financial property rights arrangement. Accordingly, some suggestions are proposed at the end of the thesis.