The Effect And The Implementation Issue Of Development Finance

From the perspective of functional role, there is no essential difference between development finance and policy-based finance, although the concept of development finance only exists for a very short time. For the country's financial system, not only the commercial finance should be included, but also the development finance should be a part of it. Development finance can effectively realize the goals of government and overcome the market failure by acting as the government's tool.But in the practice of development finance, some developmental financial institutions have shown a trend in transforming development finance to commercial finance in recent years. For instance, the two developmental financial institutions in Japan and South Korea had been conducted commercialization in order to avoid conflicts with commercial financial institutions in 2007 and 2008 respectively. But due to the financial crisis in 2008, the two countries realized the indispensable function of development finance, and terminated the commercialization process in 2011 and 2013 respectively, returned to developmental financial institution in the end.China Development Bank (CDB) is the developmental financial institution in China. Critics argued that CDB's operational mechanism confused "commercial finance" to "development finance", causing unfair competition to commercial banks. Under this background, CDB announced its commercialization reform in 2008. At that time, developmental financial institutions were regarded as an outdated arrangement, but the reality showed the commercialization reform was not good. In 2015, CDB once again set foot on the reform process, positioning on "developmental financial institution".Under this background, this paper puts up with some questions:Is the development finance really an indispensable part of the financial system? What is the reason and the result of the foreign developmental financial institutions' commercialization process? What is the problem under the commercialization process of CDB? What's wrong with the understanding of the importance and necessity of development finance?This paper is divided into seven chapters.Chapter one is the introduction. It makes a general description of the whole paper, including the background, the significance, the method, the innovation and deficiency of this paper as well as a thorough literature review.Chapter two is the theoretical basis of the necessity of the development finance. Firstly, this part analyzes the connotation of development finance and points out that the development finance is still the policy-based finance at essence. Then focuses on two issues:the necessity of development finance and the ways to conduct development finance. To the first issue, the necessity of development finance is demonstrated theoretically from four aspects:Market Failure Theory, Government Failure Theory, Quasi-Public Goods Theory and Credit Rationing Theory. To the second question, this paper suggests that it is better to set up specialized developmental financial institution to undertake the function of development finance in practice.Chapter three is the experiences and lessons learned from the commercialization reform of developmental financial institutions in foreign countries. This part focuses on five foreign developmental financial institutions. Through the success and failure of the reform result, this paper comes to the conclusion that developmental financial institutions should be cautious about commercialization reform, and developmental financial institutions should design effective mechanisms to avoid the excessive competition between development finance and commercial finance.Chapter four is the empirical study of the effect of development finance based on the data of CDB. This part uses Co-Integration Testing, VAR, Impulse Response Model and Variance Decomposition to verify the impact between the development finance variable and the economic variable. The result is significant, proves that the development finance can effectively promote economic growth. Furthermore, it also demonstrates the necessity of the development finance.Chapter five is the reform and exploration of China's development finance. Based on the reform process of the CDB, this part puts up with two problems:one problem is the lack of understanding of the development finance theory. The other problem is the lack of solving the core problem of development finance during the implementation process.Chapter six is the core problem in the implementation of development finance. This part analyzes the core problem of development finance and points out that the problem appears to be "bond credit". Then this paper puts forward a market oriented bond issuance solution based on transferring default risk. This solution can solve the core problem during the implementation of development finance effectively, and then make contributions to promote the development finance.Chapter seven is the summary, summarized the conclusions of this paper.