The Empirical Research On Influencing Factors Of China’s Financial Deepening

After the founding of China,our country carried out a series of financial deepening reform.But with the time going,financial deepening reform exposed a range of problems,such as low financial efficiency,high cost of financing,excessive reliance on Banks by the financial system and so on.This is completely different to the ultimate goal of financial deepening,which is to achieve a virtuous and effective cycle of financial deepening and economic growth.Economic system in our country is going through from the planned economy which is formed in the very beginning into a complete market economy system.As a result,the method and theme of financial deepening reform should be adapted to economic system reform.Reviewing of China’s financial deepening reform,the problem occurred in the process of financial liberalization attracted many domestic and foreign scholars to study the cause of the financial deepening.On the one hand,it is advantageous to help the government to formulate corresponding measures to deepen the reform of finance and to prevent possible problems in the process of financial deepening.On the other hand,in the process of China’s financial deepening,there is a phenomenon of excessive economic monetization ratio.So the research to find the reason of financial deepening is also conducive to the interpretation of "this riddle of China".Financial deepening theory development is put forward for nearly half a century since McKinnon’s research in 1973.It has experienced the financial deepening theory of channel effect,debt medium theory,financial constraint theory and new financial deepening theory.And it gradually formed a system.The premise of the new financial deepening theory is endogenous growth theory.And money supply is an important component in measures of financial deepening,so based on the theory of monetary endogeneity,this paper aims to find the endogenous factors that influence the level of financial deepening,and to provide suggestions and conclusions for the financial deepening reform.For the selection of influencing factors,based on previous research and theoretical analysis,this paper chooses the following three aspects.Firstly,based on monetary endogenous angle and the composition of the two dependent variables,this paper chooses the vertical growth of GDP and the horizontal composition as the explanatory variables for the financial deepening on the macro level.And the horizontal composition includes investment rate and consumption rate.Based on the factors of the financial industry,the paper selected the stock of financial assets and the financial structure two explanatory variables.Based on the open economic conditions,the exchange rate can reflect the supply and demand of China’s currency in the international market,so select the exchange rate as an explanatory variable for financial deepening.The paper chose China’s 2000-2016 68 quarterly data.Firstly,unit root test shows that all variables first-order single whole.The granger causality test proves the causal relationship between the independent variable and the two dependent variables and a long-term equilibrium model is established based on Johnson co-integration test.In order to further explore the relationship between variables,this paper makes impulse response analysis and variance decomposition by error correction model.Finally,this paper finds that in the long term,the degree of economic monetization in China is directly proportional to the improvement of financial structure,the increase of exchange rate,the growth of economy and the increase of investment rate.And it is inversely proportional to the increase in consumption rate.Based on the influence coefficient size,this paper argues that the high level of economic monetization in China is caused by the increase of economic growth,the proportion of direct financing and the rapid growth of fixed asset investment rate.The effect of these factors on economic monetisation in the short term is basically consistent with the long-term effect.As to economic financialization,in the long term,it is in direct proportion to the stock of financial assets,exchange rate and consumption rate.And it is inversely proportional to the investment rate.In the short term,the influence of explanatory variables is also consistent with the long term.But it is negatively correlated to the increase of financial assets and this phenomenon will be adjusted to long-term equilibrium at a faster rate.Based on the above empirical analysis,this paper finally concludes that the increase of financial assets,the optimization of financial structure,the increase of exchange rate,the transformation from investment-driven economy to demand-driven economy is helpful to improve the level of our country’s financial deepening.This conclusion will help the government to better consider the endogenous factors of financial deepening in the formulation of measures to accelerate the reform of finance.The innovation of this paper includes three points,as following:Firstly,the two indexes of economic monetization and economic financialization reflect the degree of financial deepening.One of the indexes of the previous study has not been able to compensate for the shortcomings of the indicators,and the combination of the two indexes can help to fully consider the endogenous factors of financial deepening.Secondly,this paper creatively uses financial structure as the explanatory variable of financial deepening.And the previous theory was perfected from the empirical research.Thirdly,the paper has considered the open economy.The economy and finance of a country cannot exist independently,especially after China’s accession to WTO.The open factor should be included in the analysis of financial deepening.