Financial system reform

Compared with a sharp rise in its monetary supply, the efficiency of the country's monetary output has been on a steep decline. China's overflowing currency supply since the eruption of the global financial crisis has directly resulted in its declining currency output efficiency. Even if some portion of these additional currency supplies have flowed to the real economy, how much influence they will produce on real economic activities will also depend on the pace of their circulation. Statistics indicate that the circulation pace of China's issued money since the global financial crisis has continually declined. The pace slowed from 0.63 in 2008 to 0.51 in 2012, a decline of nearly 20 percent. The slower pace of money circulation means the decreasing influence of its monetary inflation on economic output and efficiency.

All these highlight that future financial institutional reforms need to focus on developing a financial system that can effectively support the real economy and promote an optimized distribution system for its financial resources.

On the one hand, the country should regulate the speed of its credit expansion in a prudent manner and try to avoid the development of a debt-reliant economy. At the same time, it should take practical measures to accelerate marketization of its interest rates and security-based assets development, and promote direct financing and smooth channels for the circulation of social funds within the State financial system. On the other hand, effective measures should also be taken to optimize the country's financial structure and promote the transformation of its financial sector in tandem with its real economic transformation. To this end, the country should first give the green light to the establishment of small and medium-sized banking institutions that can better serve the large number of SMEs and micro-sized enterprises in the country. In many countries specialized financial agencies have been set up to offer credit support to small and medium-sized enterprises.

China should also try to promote the capitalization of its scientific research to make its financial resources more accessible to real economic activities. Instead of the financial system that was established in traditional industrial economic era, a modern financial system needs to be developed to facilitate the country's economic upgrading and industrial self-innovations.

The country should regard the establishment of such a financial system as a strategic task and embrace a series of preferential policies, such as fiscal input, research, credit and financing, to create a comprehensive financial system that can offer financial assistances to the development of the real economy.

The author is an economics researcher with the State Information Center.