By Chen Daofu, Financial Research Institute, Development Research Center of the State Council (DRC) 

Research Report No 17, 2015 (Total 4702)

Abstract:

The difficulties and high costs of financing are the major problems in China's economic development. However, they are in fact the phenomena and outcomes, caused by several reasons in different aspects. In addition to the results of survival of the fittest governed by market mechanism, and the byproduct of the slowdown of economic growth, they are also induced by the transformation of equilibrium mechanism and explicit price display along with the financial market development and liberalization as well as the distortion of institutional mechanism. In the course of economic transformation, structural adjustment, financial transition and liberalization, those difficulties and high costs in financing reflect the features of supply and demand of funds when the government maintained a stimulus policy and loosened monetary leverage to keep a smooth financial performance through implicit guarantee and rigid payment. To overcome the difficulties in financing and lower down the cost, the priority issue is to make an analysis down to the root on what are the causes, and fully get to know how to crack the hard nut. In other words, to resolve the problems, the radical step is to provide necessary economic adjustments, cut down the role that the non-market factors play in interest rate, so that the market system can work in a normal way.