Wenzhou Reform Of The Financial System

This article researches Wenzhou reform of the financial system from the perspective of the financial ecosystem. This paper argues that the slow economic recovery after the financial crisis and the lending usury of private capital act resulting in Wenzhou private lending crisis, but private lending is more deep-rooted problems in China’s economic performance epitomized; it highlights a serious mismatch between the needs of the private economy and financial supply. On the one hand, China’s financial system defects resulting in unreasonable allocation of financial resources; the other hand, the lack of private capital to effectively clear way that makes further exacerbating the difficulties of private business. At critical period of economic transformation in China, Wenzhou private lending crisis prompted people have to recognize the drawbacks of the existing financial system, and sparked the thinking of China’s economic prospects and concerns.After the founding of New China, the socialist planned economy system requires financial system that executive-dominated and corresponded management. As the drawbacks of the planned economy system are gradually emerging, the reform of the economic system will inevitably require the reform of the financial system to serve the requirements of the transformation of the economic system. The development of the market economy requires the exclusion of government intervention in various economic resources and to achieve the efficient functioning of the economy, thus the financial resources also requires the government to gradually liberalized, which also requires the change of a single, highly centralized national banking and financial system, and obtains the market-oriented reforms of the financial system. But the current reform model deviates from the efficiency of resource, and assumes the functions of financial subsidies to state-owned economy. China’s economic reform is born in the dual socio-economic structure that has the long-term stability, which one is a strong government and the other is a decentralized economic organization. The socio-economic structure will inevitably breed a strong government power system and lead the Government which has a strong subjective preference for political stability and economic stability. In order to maintain the stability of the system outputs, the country needs to provide a variety of implicit or explicit financial subsidies for state-owned enterprises and to compensate for the huge cost burden which is formed in the process of reform. There are many sources to maintain output stability, but in fact, the state-owned bank is the main body of the state-owned enterprise reform cost. Maintaining a monopoly of the entire banking system in the process of developing a market economy has a very important meaning. However, the bank is characterized by a high degree of monopoly in China’s financial system has obvious disadvantages, on the one hand, the interest rate controls will lead financial resources to low efficiency, and on the other hand, it will lead to social investment and financing system which is not perfect.Under the current financial system, private finance emerges. Compared to the formal finance, private finance information has more advantage; besides, the private finance is the reaction of financial repression and credit constraints. Even more important, the exogenous small and medium-sized financial institutions that are set up by government can not be a fundamental solution to the financial difficulties in the process of the development of private enterprises, which is itself due to existing small and medium-sized financial institutions such as city commercial banks, rural banks in which the largest shareholder are local government and state-owned companies. So there is no substantive difference in the way they operate and management models with large state-owned commercial banks. Compared to the formal finance, the exogenous small and medium-sized financial institutions are still facing the problem of information asymmetry, and thus, even if the government is induced formal small and medium-sized financial institutions to provide credit support to the majority of private enterprises by a variety of favorable terms, it is difficult to achieve effective supply of financial resources. Therefore, a more practical policy is to relax the restrictions on market access, thereby further encourage the generation of endogenous financial institutions for the development of the private economy. Thus, on the one hand, the development of the private finance can break the monopoly of the formal financial and to promote the rational allocation of financial resources; and on the other hand, the formal financial development can also promote private financial legalization, which can form a harmonious and orderly development of private finance and formal finance.Therefore, this paper argues that Wenzhou private lending crisis has a profound institutional reason. From a practical point of view, China’s reform of the financial system deviates the efficiency of resource allocation optimization goal; the most prominent is that China’s financial system has assumed the function of financial subsidies to state-owned economy. So, the Bank that is characterized by a high degree of monopoly of China’s financial system has obvious disadvantages. Further this article discusses the formal financial and private financial relations from the perspective of supply and demand perspective, and points out the development of the private financial that can break the monopoly of the formal financial and promote the rational allocation of financial resources. Then this paper analysis the Wenzhou private financial and points out that the key question is how to build Wenzhou financial system to regulate the private financial and orderly development of the formal financial, private finance, financial supervision between rational division of labor and cooperation. Finally, the paper elaborates the Wenzhou financial ecosystem building problems. This paper analyzes the need for financial system building based on private enterprise financing Game. Firstly, we call for scientific view of the financial ecosystem that can promote the sustainable development of the financial sector; secondly we need optimize the financial structure that may promote formal financial orderly competition with private financial; thirdly we call for Improve the financial regulators that can create a favorable institutional environment for Wenzhou financial ecosystem; finally we should promote and maintain the integrity of the Wenzhou area cultural construction. With the Wenzhou financial ecosystem, it will not only help to solve Wenzhou economic and financial issues, but also can contribute to the propulsion of the entire financial system reform in China. This ecosystem will have an important demonstration effect of the deepening financial reform nationwide.The innovation of this paper is that studying Wenzhou reform of the financial system from the perspective of the financial ecosystem, and researching Wenzhou reform of the financial system which should follow the path from the environment of China’s overall reform of the financial system and further expand its direction. This paper suggests that, under the existing financial system pattern, Wenzhou private lending crisis is not accidental; it has a profound institutional reasons. Under the existing pattern of financial system, the private financial institutions will have more problems. In addition, to further demonstrate the importance of the financial ecosystem, this paper uses the incomplete information static game model to analyze the difference between private enterprises to borrow money from the formal financial organizations and private financial organizations, and based on comparative static analysis, it is pointed out that a self-regulating financial ecosystem functioning will not only help to solve Wenzhou economic and financial issues, but also can contribute to the propulsion of the entire financial system reform in China.