China's Rise: Development-oriented Finance And Sustainable Development

Development-Oriented Finance and Sustainable Development

Lixing Zou

• Publisher: WSPC
• Year: 2014
• ISBN:
  9789814596688
• Topic: Ciencias biológicas
• Subtopic: Ciencias en general

As a government institution specializing in development-oriented finance, the China Development Bank (CDB) has combined advanced international financial theories with China's practical conditions and has done remarkably well in removing financing bottlenecks, establishing market credit systems, and ensuring faster and better economic and social development. Its practice and theory in development-oriented finance represent a major distinctive feature of China's socialist market economy.

Written in the setting of great history, great changes and great challenges, this book contains a systematic study of the theory and practice of development-oriented finance that has evolved along with China's reform and opening up. It provides an in-depth analysis of the ideological basis, theoretical contents, operating principles and innovative development of China's financial system.

China's Rise: Development-Oriented Finance and Sustainable Development will promote further discussions and researches on China's modern economic and financial systems and in turn the sustainable development of the Chinese economy and the world economy at large.

Contents:

• The Logical Basis of Development-Oriented Finance:
  • Seizing the Major Contradiction in Development
  • Realistically Exploring the Solution to Problems
  • Cultural Foundation of Development-Oriented Finance
  • Philosophical Outlook on Development-Oriented Finance
  • Rational Judgment of Development Trend and Dynamics in the 21st Century
• The Theoretical Contents of Development-Oriented Finance:
  • Planning is a Core Competitive Edge
  • Building the Credit Market Constitutes the Fourth Driver for Economic Development
  • Organizational Credit Enhancement Accelerates the Construction of Market Credit System
  • Portfolio Financing, Banking's Efficient Two-Edged Tool
  • Perceptions on Financial Socialization
• The Operation Mechanism of Development-Oriented Finance:
  • The Operational Mechanism: Government Entrance, Financing Process and Marketing Exit
  • Sources of Funding: Financial Bonds Supplemented with Other Raised Funds
  • Governance Structure: Democratic Funds and Financial Management
  • The Management Style: Market-Based and Standardized Management Mode
• The Reform of Development-Oriented Financial Institute:
  • Global Financial Crisis Promotes World Order Change and International Strategy Adjustment
  • China's Finance Under the Background of Global Changes
  • The Study of How a Development-Oriented Financial Institute Functions as a Commercial Bank
  • Promoting the Healthy Development of the Financial Institution to a State of Commercial Operation
  • A Preliminary Study of Financial Diplomacy
  • Properly Handle Five Relations to Ensure the Stable and Rapid Economic Development of China

Readership: Students, Professors and Policymakers in Finance, Environmental Science and Sociology. Key Features:

• This book, written against the backdrop of great history, great changes and great challenges, contains a systematic study of the theory and practice of development-oriented finance that has evolved along with China's reform and opening up, and an in-depth analysis of the ideological basis, theoretical contents, operating principles and innovative development of Chinese-style Development-oriented finance
• The publication of this book will promote further discussions and researches on China's modern economic and financial systems and in turn the sustainable development of the Chinese economy and the world economy at large

Part I

The Logical Basis of Development-Oriented Finance

Development-oriented finance is the outcome of the reform and opening-up policy, which is a system built to deal with the bottleneck of the development. This kind of finance undertakes policy-related tasks, but does not depend on funding from fiscal policy; it has the function of market, but does not aims only at pursuing market profits; and it has the characteristics of financial enterprises, but represents the intention of the central government. As the development-oriented financial institute of the government, CDB actively explores and improves socialism market economy with China’s characteristics, breaks the bottleneck of fund raising, and promotes the construction of market credit system so as to support China’s booming economy. Moreover, CDB has formed the theory and practices of development-oriented finance. From studying and comparing the theory and practices of development-oriented finance, it is not hard to find that China’s development-oriented finance links with China’s special problems, solutions, thoughts, and culture and also has a close relationship with our international environment. In this part, we analyze the logical basis of the theory and practices of development-oriented finance, making efforts to answer the question of “how to produce”. There are five aspects that are addressed: (i) seize the main contradictions, especially seizing the key contradiction between mid-and long-term development; (ii) find the solutions to problems realistically, actively working out the contradiction between economic development which calls for a great demand for finance, and the lagging of the financial market development; (iii) modernize the theory of credit and find an inner condition for transferring from lack of credit to existence of credit; (iv) inherit and carry forward the fine traditional culture and the advantage of political organization, escalating the development of market credit system so as to consolidate the basics for mid- and long-term development; and (v) judge scientifically the basic direction of sustainable development and impetus for urbanization under the conditions of international competition, and promote the development of urbanization and the development of consuming finance market.

Chapter 1

Seizing the Major Contradiction in Development

China stays in a period of strategic opportunities characterized by its adjustment toward global patterns, development of urban areas, and transformation of mode of production. As a result of China’s basic conditions, there are lots of contradictions existing in its economic and social development, in which, from the point of economy and finance, the most prominent one is the contradiction between huge financial demands and the laggard development of its financial market. As finance is the core of socioeconomic development, the causes and solutions of all development problems can be traced from finance. China Development Bank (CDB), as a development-oriented finance institution of the government, combines advanced international theories with China’s actual situation, adheres to the theories and practices of development-oriented finance, concentrates on the principal contradictions occurring in the tight operation of its macroeconomy, and discusses the acceleration of medium and long-term infrastructure construction and sustainable development mechanism of the economy and the society.

1.1 China’s market credit mechanism cannot meet the needs of smooth and rapid economic development

The founding of the People’s Republic of China, in particular, the 30 years of reform and opening up to the outside world have profoundly changed the destiny of an old nation. Economic development, social progress, improvement in people’s livelihood, and building comprehensive national strength are some of the factors that have brought in tremendous changes in this great land that constitute the remarkable achievements of China. However, China generally lies in a middle stage of industrialization, with many deep problems and formidable medium and long-term construction tasks. A series of challenges would appear in the course of economic globalization, including the following aspects. First, the development of urban and rural areas remains imbalanced, and income gap should be further narrowed. Among the 1.3 billion people in China, 44% of them live in urban areas while the remaining 56% live in rural areas. The spending by rural people is about one-third that of urban ones, that is, three peasants equal one urban resident in terms of purchasing power. Second, industrial structure is unsound, agricultural foundation is fragile, industry is extensive but not strong, and service industry lags. In the economic structure, structures of production, resource, market, technology, and business organization present strategic defects, and such defects are becoming more and more manifest and acute. Third, independent innovative capacity is not powerful enough because of the lack of independent intellectual property rights, core technologies, and global well-known brands. Among the 49 major countries in the world, China takes the middle and low place with respect to innovative capacity in science and technology and is inferior to developed countries and even developing countries such as Brazil and India, respectively. China’s dependence on foreign technologies reaches over 60%, while that of developed countries is less than 30%, in which, that of USA and Japan is only below 5%. If such a situation cannot be altered soon, China will be regarded as a low-tech and low value-added country in the international division of labor on a long-term basis. China is confronted with a significant strategic choice in her economic development to enhance her independent innovative capacity in an all-round manner. Fourth, economic development entails huge costs on resources, environment, and society. The economic growth in China still presents low efficiency and quality, and the extensive mode of growth, i.e., high input, high consumption, heavy pollution, uncoordinated development, and low benefit, has not been changed fundamentally. Fifth, social development lags behind economic development, showing an uneven state, and resulting in big pressures on employment and social security. It will be hard to meet the needs of the people for the development of social public welfare undertakings if it only relies on the market-based allocation of resources. Thus, we still have a long way to go in building a harmonious society. Many new subjects have been brought forward in terms of further deepening of system reform as well as adjustment of economic structure, social structure, and interest pattern. China’s actual situation is that its advantages and disadvantages exist together, new contradictions and old contradictions make the situation more complicated. A variety of problems in connection with its economy and society indicate that China’s macroeconomy stays in a state of “tight operation”.

1.2 China’s macroeconomy will be in a state of tight operation for a long time

In the primary stage of socialism, on the one hand, China’s economic development is restricted by natural resources, human capital and managerial competence, innovative capacity, technological conditions, development environment, and other economic resources; on the other hand, various changing demands of social members push forward the over-expansion of aggregate demand. For the purpose of utilizing limited economic resources to a maximum extent and meeting various demands of social members, it is inevitable to generate a state of tight economic operation represented by excessive growth of demands and restriction by resources. The basic features of such a tight operation include the following: (i) despite the over-supply in some aspects in a certain period, aggregate demand is more than aggregate supply by and large; (ii) severe structural imbalance exists due to excessive growth of aggregate demand; and (iii) tight allocation of macroeconomic resources and sluggish allocation of microeconomic resources coexist during the allocation of social and economic resources. The dynamic mechanism of tight operation lies in the following: first, defects are inevitable in the national economy of China, which could be related to both products and sectors, resulting in a state of shortage. In a market economy, it is difficult to regulate quantum and major structural relationship in the national economy by means of market price mechanism, thus it is hard to overcome the problem of shortage. As China is a country with an undeveloped market economy, it will face great difficulties if it attempts to reach economic balance by market regulation. Though administrative interference by the government may release some pressures, the shortage dominates the market explicitly or implicitly. Under such circumstances, aggregate demand will show a trend of over expansion, bringing about the exhaustion of some important resources and eventually result in economic imbalance. If macroeconomic planning is not ready, China will overly meet middle-economic (region) and microeconomic (enterprise) demands for investment and consumption, and excessive importance would be attached to the control of quantum by value balance in terms of the relationship between value balance and physical balance, where non-price defects may give rise to economic shocks. And then macroeconomic retrenchment and structural adjustment will ensue. Second, there are six influential interest bodies in the operation of China’s national economy, i.e., (i) country, (ii) central ministries and commissions (line status), (iii) local governments (square status), (iv) enterprises, (v) social organizations, and (vi) families (residents). Different interest bodies have different pursuits, and big discrepancies exist between communities. In particular, central ministries, commissions, and local governments shoulder diverse economic and social responsibilities, which often scramble for investment and role in the national economy, exacerbating the shortage economy. Presently, China’s mechanism to operate its economy comprises both the unity and the discrepancy among different economic bodies. Ideally, the community of interests would constitute the foundation of an economy’s harmonious operation. Therefore, any discrepancy in interests is the root cause of economic shocks. Third, the tight operation in China is determined by historical characteristics in the primary stage of socialism, and it is an inevitable outcome from the mode of production and operational rules in such stage. Some mechanisms need to be further improved to aid the development process, for example, the balance mechanism on demand and supply, and self-motivation and self-discipline mechanism of economic bodies in respect of production and consumption. Currently, China’s systems cannot effectively restrain the growing demands. Particularly, the lack of a demand restraint mechanism at the microeconomic level makes the asymmetry between social demand and supply graver. The stronger the economy surpasses the growing demand levels blindly, the more difficult the effective and synchronous growth of supply is. Consequently, it is hard to restrain the excessive growth of social aggregate demand, making tight economic operation become a basic feature in the primary stage of socialism. About 20 years ago, Mr. Chen Yuan made such judgment,¹ which has been proved by nearly 20 years of development. In the current and next periods, the above contradictions and challenges appearing in the economic development of China are not related to the above-mentioned feature, and China’s decisions and choices on reform and development have taken the above-mentioned feature into consideration. Overall, in the primary stage of socialism, China’s economy is always stays in a state of “tight operation”, which is the basic national condition of China.

1.3 The underlying reason of tight operation of macroeconomy lies in the laggard market credit system

The underlying core reason for the tight operation of China’s macroeconomy is due to its defective and laggard credit system, that is, the backward financial system. Funds are essential in construction and development. Shortage could be summarized as shortage of funds. Scrambling for investment and resources is just for the dominance of funds. Why do social aggregate demand and supply show a state of imbalance? Why is it hard to regulate the quantum and major structural relationship in the national economy by means of price mechanism? We may attribute the reasons to China’s defective and laggard credit system. A strong credit system is the basic system and fundamental pattern for the allocation of resources in the country. An advanced credit system mobilizes credit resources from various sources, promotes the development of productive force, reduces currency flows, accelerates capital turnover, and facilitates the establishment and development of modern enterprise system. Conversely, a laggard credit system will severely hamper credit information flow and credit transactions in the whole society, and lead to the segmentation of economic resources and high trading costs as well as restrict social and economic development. According to the relationship of economic interest, Karl Marx once analyzed the capitalist credit system in a dynamic manner and elaborated the position of the credit system on a profound basis. He said, credit system accelerated the material development of productive force and the formation of world market. Marx developed the material basis for a new form of production to a relatively high degree.² As a result of a laggard credit system, credit defect is grave comparatively, which could extend to other areas of the economy and severely affect the harmonious development of economy and society. This is not a simple economic problem, but the problem of a state’s basic system, because behind the credit system is the creditworthiness of a country and the government. It is also one of the important perspectives in Marx’s credit theories.³ Problems in a credit system cannot be solved only by reliance on the market. Its construction could be treated as a social system project, covering economy, culture, education, and politics, which will be affected by both tradition and the outside world. In addition to the government credit system, the credit system also includes market credit system, corporate credit system, and personal credit system, that is, some micro-credit systems exist in the society (the micro-credit system has several forms, which can be a person, a family, a company, a department, or even a region). An advanced credit system will be necessary to connect such numerous micro-credit systems, to develop into a sustainable credit system for the entire society. The key here is to establish an advanced credit system. A system is the guarantee of a framework. In the case of lack of the credit system, it would be impossible to build a “bridge” for the development of the capital market, sustain the financing system for economic development, and develop standardized credit and securities financing. Besides, the contradiction between huge financing demands for urban infrastructure and short supply will not be perfectly tackled. At present, China’s economy, system, and market are developing, loans are provided by banks in an energetic manner to support China’s economic growth, and the role of financial system in national economy keeps improving. Nevertheless, the arrangements of the Chinese financial system, to a large extent, fall behind the requirements of economic reform and development, with the bank’s low efficiency in extending credit. Structural distortion is found in the allocation of credit resources, and financial development fails to keep up with social and economic development, thus becoming a bottleneck and a weak link in the country’s socioeconomic development. Financial development involves a series of deep problems and long-term contradictions, reflecting periodic characteristics in the economic development and special problems in the transitional period. Beside the historic problems and new situations brought about by all-round opening up, the fundamental problem lies in the laggard modern credit system of China. For that reason, China’s financing system reform should aim to strengthen the construction of a modern credit system, build a social credit system, construct and maintain an efficient market, and bring high efficiency in finance into full play. In order to resolve financing difficulties and credit bottlenecks, the root of problem must be thoroughly dealt with (Figure 1.1).

Figure 1.1: China’s economic forms.

1.4 Summary

The contradiction between huge demands for rapid economic growth and the presence of a backward credit system is the principal contradiction in the economic development of China. The laggard credit system is far from meeting the stupendous demands from the rapid development of industrialization and urbanization in China, such as the demand for infrastructure construction, upgrade of industrial and consumption structures, environmental protection, ecological construction, and development of social undertakings. At present, China faces the major problem of defective credit arrangement, represented by low recognition to credit, much importance to material construction, and contempt to credit construction and financing system construction. These are the key reasons for the laggard financial reform and backward economic development in China, and are also a major “bottleneck” in economic development, especially in market system construction. As a basic economic system within the scope of history, a credit system emerges and develops due to the needs of economic development, and changes with the development of the productive force. In a market-oriented economic development, the general credit level of the society reflects an equilibrium point between the supply of and demand for resources, while the status of market credit system suggests the development level, development environment, and development conditions of a country or region. Countries with a developed market economy usually have a sound credit system. And China, a country staying in the primary stage of socialist market economy, particularly nee...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• Foreword
• Preface
• Introduction: Ref ection on Development-Oriented Finance in China
• Part I. The Logical Basis of Development-Oriented Finance
• Part II. The Theoretical Contents of Development-Oriented Finance
• Part III. The Operation Mechanism of Development-Oriented Finance
• Part IV. The Reform of Development-Oriented Financial Institute
• Bibliography
• Epilogue
• Name and Subject Index