Download Research on Financial Support for the Development of Regional

Research on Financial Support for the Development of Regional
Economy: A Case of Jiangxi Province
YIN Yahong
School of Finance,
Jiangxi University of Finance and Economics, Nanchang, Jiangxi Province, China, 330013
[email protected]
Abstract: At present, the insufficiency of financial support has seriously restricted the economic
development of Jiangxi. Therefore, constructing a good environment of financial support is a necessary
condition speeding up the economic development of Jiangxi. On the basis of analyzing the function of
finance supporting the development of regional economy, this paper studies financial support for the
economic development of jiangxi combining with the status quo of economic development of Jiangxi,
and further puts forward the effective countermeasures of financial support for the economic
development of Jiangxi aiming at the insufficiency of finance support in the economic development of
Jiangxi.
Keywords: Financial Development, Financial Support, Regional Economy.
1 Introduction
The relation between finance and economic development is always an important problem which has
received the universal attention from the economists. In the development of regional economy, the
intrinsic harmony mechanism between finance and economic development embodies the degree of
contribution of the financial industry to economic development, the concordance with economic
development, and the spillover’s effect of the development of finance industrial, namely pulling the
development of other industrial and promoting the whole economic development which includes fund
supplies, the guarantee of system and policy environment, and so on. Therefore, financial development
is actually how to select policy arrangement, reasonably arrange the order of precedence, and fully exert
the function of financing and adjusting economy so as to accelerate economic development.
In the recent years, the relation between finance and economic development has received attention
from many domestic scholars. Ran Guanghe and Li Jing (2006) studied the long-term and short-term
relations between finance and economic growth in the eastern and western of China. Zhou Li and Wang
Ziming (2002) came to the conclusion by investigation that finance development had close relation with
economic growth in each area of China. Ran Maosheng and Zhang Zongyi (2003) thought that financial
development had the obviously promotional role in the growth of GDP, but the output growth of
non-state-owned department had no relation with financial development in China. Chen Liuqin and
Zeng Qingjiu (2003) thought that financial development had positively effect on economic growth of
China, but the degree was limited. Han Tingchun (2003), Wang Jingwu (2005) thought that the
continued growth of economy should be realized as long as the efficiency of financial department
unceasingly improved.
The above scholars mainly studied the relation between financial development and national or
regional economy, but there were few about financial support for the development of provincial
economy. Therefore, this paper analyzes financial support for the development of regional economy
taking Jiangxi province for example.
2 The Functions of Financial Support for the Development of Regional Economy
2.1 Enhancing the marginal productivity of capital in the region
The development of regional finance is able to make financial system influence the marginal
productivity of capital and allocate the fund to the project with the highest marginal productivity of
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capital in the region. It is mainly by three ways that financial system enhances the marginal productivity
of capital. First it evaluates various and optional projects of investment by collecting information and
chooses the project of maximum profit to invest. Second it impels individual to invest the technical
project of higher risk by sharing venture. Third it promotes the innovative activities.
2.2 Increasing the savings ratio of the personal in the region
The development of regional finance can increase the savings ratio of the personal in the region so as
to improve the rate of economic growth. First it is through the wealth effect of securities market. The
scale of securities market expands and assets rises in price should affect the expected income of people
and comes into being wealth effect. With the increasing wealth, the savings ratio of the personal will
effectively enhance. Second it is the better liquidity of securities market reduces uncertainty in future.
Thus, it makes people’s preventive savings reduce so as to influence the savings ratio of the personal.
Third it is the development of financial intermediary, diversification of financial instruments, and
perfection of payment system reduce the transaction cost of savings and information expense, which
facilitate people’s savings, with the result that the savings ratio of the personal is increased.
2.3 Promoting savings in the region effectively translated into investment
Financial development can increase the proportion that savings are translated into investment so as to
improve the ratio of economic growth. Financial development can form perfect and multi-level
investment system, and especially advantage to investment project with long cycle, great input, high
income and risk. Financial system has the function of risk management, which can manage the liquidity
risk and engage in diverse investment. By providing financial instrument of standardization and
circulating market, it can make the material capital be completely monetized and standardized, and
make the indivisible and non-tradable capital have entire divisibility and exchangeability. Financial
system also directly influences the investment tendency of enterprises through the variance in the
market price. These all can improve the proportion that savings are translated into investment, with the
result that economic growth is accelerated.
3 The Problems with Financial Support in the Development of Economy in
Jiangxi
In the recent years, taken as one of undeveloped provinces in middle region of China, national
economy of Jiangxi continued to develop. In 2007, GDP of the whole province was 546.93 billion
and increased by 13% compared with 2006. The average per capita GDP was 12562 and increased by
1764 compared with 2006. The investment in fixed assets was 330.01 billion and increased by
23% compared with last year in 2007. The total of retail on consumable amounted to 168.31 billion
and increased by 17.9% compared with 2006. The total of imports and exports on goods was U 9.48
billion and increased by 53% compared with last year in 2007. Gross of revenue amounted to 66.46
billion and increased by 28.2% compared with last year in 2007. At the end of 2007, balance of deposits
in financial institution of the whole province was 590.01 billion and increased by 68.74 billion
compared with the beginning of 2007. Balance of loans was 402.67 billion and increased by 56.69
billion compared with the beginning of 2007. In 2007, the average per capita rural net income was
4098 and increased by 14.3% compared with 2006. The average per capita urban dwellers’
controllable income was 11222 billion and increased by 17.5% compared with 2006. However, the
economy in Jiangxi still fell behind compared with other provinces in middle region of China, as shown
in table 1.
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Table 1 The Status of Economic Development of 6 Provinces in Middle Region of China in 2007
Province
Jiangxi
Hebei
Hubei
Hunan
Anhui
Shanxi
Index
GDP
546.93
1505.807
915.001
914.5
734.57
569.62
Investment
330.01
801.011
453.414
429.452
510.59
292.72
in fixed assets
Total of retail on consumable 168.31
459.754
402.853
335.649
240.37
191.41
Total of imports and exports
9.48
12.805
14.858
9.690
15.93
11.57
on goods
Balance of deposits in
590.01
1257.642
1109.303
915.527
840.66
1011.19
financial institution
Balance of loans in financial 402.67
954.548
749.646
615.751
604.25
551.42
institution
The average per capita rural
4098
3851.60
3997
3904.26
3556.3
3665.7
net income
The average per capita urban 11222
11477.05
11485
12293.54
11473.6
11565.0
dwellers’ controllable income
Notes: (a) Total of imports and exports on goods (billions of USD). (b) The average per capita rural net income, the
average per capita urban dwellers’ controllable income (yuan). (c) The others (billions of yuan).
Source: National Bureau of Statistics of China (2007).
In brief, the main problem which economic development of Jiangxi faced is the insufficiency of
financial support. It is displayed as follows:
3.1 Policy or measure of financial support deviating from practice
Because state-owned commercial banks adopt inflexible credit policy, it is difficult for SMEs to
obtain credit aid. State-owned commercial banks use the credit patter which suits large enterprises to
SMEs (small and medium-sized enterprises) in credit management. Rating standard which adapts to
state-owned large and medium-sized enterprises is used to private enterprises in evaluating credit rating
by state-owned commercial banks, with the result that it is very few for private enterprises’ credit rating
to achieve A. Moreover, in credit operation, commercial banks don’t adapt to the characteristic of SMEs
with urgent need for loan, high frequency, relatively small amount of loan. Thus, SMEs can not obtain
the credit support of commercial banks in time when being short of fund, with the result that they lost
commercial opportunity.
3.2 Capital market being undeveloped and the financing means being single
Jiangxi province has no bill market and bond market where the function of financing is powerful. All
kinds of enterprises have not the idea of initiative financing through securities market. All levels of
governments lack the effective mechanism helping enterprises to participate direct financing. All of
these cause undeveloped financial market in Jiangxi, small scale of market, structural disequilibrium,
low efficient collocate of resources so that the role of industry combining with finance can not be played.
At the end of 2007, Balance of loans in financial institution of the whole province was 402.67 billion.
The direct financing through capital market was 17.8 billion. It is quite obvious that the scale of
direct financing is lower than that of indirect financing. Consequently, indirect financing is still the
important sources of investment in economic development of Jiangxi.
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3.3 Disequilibrium of financial structure existing financial support
First it is structural disequilibrium of financial institution. State-owned commercial bank monopolizes
financial market in Jiangxi. According to the related information of bureau of statistics of Jiangxi
Province, assets of state-owned commercial banks of Jiangxi accounted for over 80% of the total of
financial assets in the recent years. All kinds of financial institutions and the financial instruments
mainly serve the state-owned enterprises or the large and medium-sized Enterprises. It is short of
financial institution serving SMEs and private enterprises. Second it is structural disequilibrium of
financial instrument. On one hand, the structure of traditional operation of finance is single. On the other
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hand, financial innovation is insufficient. Third it is structural disequilibrium of financing. According to
the financial statistic of the People’s Bank of China Nanchang center sub-branch, exogenetic financing
of enterprises of Jiangxi accounts for more than 90% of all financing. Loans of banking become the
main channel of financing to enterprises. Fourth it is the problem about attaching importance to industry
and commerce but neglecting agriculture. According to the financial statistic of the People’s Bank of
China Nanchang center sub-branch, balance of loans in financial institution of Jiangxi increased to
402.67 billion in 2007 from 285.4 billion in 2004, but the loans in agriculture only increased to
43.751 billion in 2007 from
25.4 billion in 2004, whose proportion was more or less 10%.
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4 Countermeasures of Financial Support for Economic Development of Jiangxi
Economic development of Jiangxi needs the support of finance. Which degree it develops to lies on the
strength of financial support. Therefore, it is necessary that the whole society makes concerted efforts to
take effective countermeasures of financial support so as to further drive economic development of
Jiangxi.
4.1 Perfecting the credit system to enhance credibility of enterprises
Firstly, it is necessary to guide enterprises to enhance the idea of credit and improve credit situation
by promulgating and implementing correlative law, which can speed up construction of credit system of
enterprises in Jiangxi.
Secondly, the platform of credit information should be set up to make credit supervision of enterprises
to be socialized. Therefore, it should collect and organize the information file about enterprises in time
so that the credit information about enterprises can be publicized to the society. Only in this way, can
information asymmetry be alleviated and the investors eliminate from worry for the risk of investment.
Thirdly, enterprises should make great efforts to improve the level of management, establish standard
financial management system, and enhance the idea of credit and law so as to set up the good prestige of
enterprise.
Finally, enterprises should set up the idea of “honest for fundamental”. The honest is the necessary
condition for the development of enterprises. Only enterprises strictly follow the principle of “honest for
fundamental”, fulfill the loan contract according to the facts, maintain the good credit and establish the
good relation between banks and enterprises, can the condition for financing of enterprises be created.
4.2 Speeding up the construction of capital market to enhance the proportion of direct financing
To enhance the proportion of direct financing must speed up the development of financial market,
especially capital market.
Firstly, it must emphatically develop the primary market in order to infuse more funds for the
development of entity economy. Secondly, it tries to develop the bond market, especially the corporate
bond market. Thus, the advantage of debt financing should be fully exerted so as to enhance the
proportion of direct financing for enterprises. Thirdly, it should further perfect the stock market. Transfer
and circulation of non-listing stock must be effectively settled. Finally, it should vigorously develop the
venture investment fund. Because venture investment fund has the characteristic of small par value,
diversified investor, high degree of market-ization, high risk and return, the development of venture
investment fund should bring huge role of fund support to SMEs.
4.3 Expanding the indirect financing channel to accelerate economic development of Jiangxi
4.3.1 Vigorously developing small and medium-sized financial institutions
On one hand, it should expand the developmental space of urban small and medium-sized financial
institutions. They must fully exert their own characteristic of flexible mechanism, namely make good
use of the advantage and avoid the weakness and should make their market be oriented to SMEs.
On the other hand, the level of management and quality of the rural credit cooperative should be
improved. The rural credit cooperative is mostly located in the villages and towns. It should become the
main chain of fund supply of the rural enterprises and rural economy, with the result that the difficulties
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in financing of rural economy could be settled.
4.3.2 Perfecting the financing mechanism which commercial banks support the economic development
Firstly, commercial banks should institute a system of evaluating credit rating which accords with the
developmental situation of enterprises, especially SMEs.
Secondly, commercial banks should carry out the innovation of financial services. Financial
instruments such as Commercial Acceptance Bill, Banker’ Acceptance Bill, and so on should be issued
to the enterprises with good qualification and high credibility.
Thirdly, the innovation of financial operation should be accelerated. Especially, commercial banks
should powerfully develop financial leasing business to resolve the problem of laggard technology and
obsolete equipment of SMEs. Because financing leasing has the function of integrating financing capital
with financing goods, and the characteristic of simple approval procedures, low cost and small risk,
financing leasing is superior to other financing means in financing of technological transformation of
SMEs.
4.4 Perfecting the laws and regulations of financial service for SMEs
Being the main forces of economic development of Jiangxi, SMEs have the unique edge compared
with the large enterprises, such as strong ability of institutional innovation and technological innovation,
low cost of management and swift adapting to market shift, and so on. However, the fund bottleneck has
become large obstacles to SMEs. At the same time, it is also the economic body that financial
institutions easily neglect. Therefore, government of Jiangxi should institute an intact law to
emphatically support the financing of SMEs. Only in this way, can market environment of fair
competition which is of help to SMEs’ development be constructed.
4.5 Constructing social service system to create microeconomic environment for finance
supporting economic development of Jiangxi
Limited by impersonal conditions, it is difficult for enterprises to quickly enhance the level of
management and financing ability depending on their own strength. Therefore, it needs government to
guide and set up many social agency institutions which are able to provide various services for
enterprises such as consultation, information, education, technology, and so on. They can guide
enterprises to carry out system innovation, technological innovation, management innovation and
organization innovation, with the result that competitive capabilities of enterprises are unceasingly
improved.
5 Conclusions
Finance is the important impetus for the development of regional economy. Constructing the good
environment of financial support is a systematic project, which involves each aspect such as enterprises,
financial institutions, government, and so on. Only the whole society makes concerted efforts to take
effective countermeasures of financial support, can the fund bottleneck which restricts economic
development be mitigated so that the development of regional economy could be promoted.
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