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The market economy and the choice of corporate financing

The market economy and the choice of corporate financing Abstract: socialist market economic system in China to establish and perfect for our business has brought new development opportunities, but also had some problems to solve new problems. Among them, how to establish effective corporate new financing system is directly related to whether the state-owned enterprises out of the woods, to achieve capital restructuring and capital structure optimization, thereby promoting the establishment of modern enterprise system. This paper from the reform of the national conditions of China, the finance market with the goal of solving the problem of state-owned enterprises and banks together, and through the comparison between different methods of financing, business development efforts to explore for the financing channels of choice. (A) in a market economy, enterprises need to maintain normal production operations and seek development, need to continue to raise funds. Constitute a source of funds from the enterprise point of view, business growth comes mainly from two aspects of capital: the accumulation of internal funds and external funding. Internal funds is retained profits and depreciation funds, because at this stage of the low level of retained profits of enterprises, enterprise development, rely mainly on external funding, and external funding needs to raise from the financial markets, including short-term money market to raise capital through long-term capital through the capital market to raise, according to whether the funds transfers in the supply and demand sides, can be a long way in raising funds is divided into two ways, namely, direct financing and indirect financing. The so-called direct financing, is not through financial intermediaries, the money supply and demand sides of financial intermediation to direct negotiations. Through commercial credit,[link widoczny dla zalogowanych], corporate stocks and bonds issued ways of financing are a direct financing. Indirect financing is from banks and other enterprises through financial intermediaries indirectly to the original owners of capital funding, its basic form of a bank or non-bank financial institutions, depositors or other clients from the fragmented to the capital to collect the loan, the purchase corporate stock or other form of corporate finance. Direct financing and indirect financing of the merits of how the two methods has long been differences in theoretical circles. Some scholars believe that the relatively wide range of bank credit, making the financing of relatively concentrated, so you can adjust the operation of supply and demand of funds, develop a variety of financial products and financing channels,[link widoczny dla zalogowanych], the relatively lower cost of financing, reduce financial risk. Meanwhile, financial institutions, to grasp the initiative in financing, credit constraints can have on business form is conducive to the rational flow of credit funds and configuration. Therefore, they concluded that the indirect financing of a comparative advantage. However, some scholars from the national conditions of developing countries that in developing countries, banks are often low-interest loans to enterprises at the expense of bank losses, the cost of financing the enterprise than the weak, the enterprise takes on the unreasonable increase in funds, banks bad debt, a significant increase in bad debts, which run the cost of indirect financing in general, not lower than the direct financing. Second, banks are credit constrained enterprises in developed countries is the credit funds can not effectively operate, thereby increasing systemic risk in the financial system. Thus their view, an indirect financial advantage of only applies to developed countries, while in developing countries, direct financing is a comparative advantage. From the practice, however, countries in the financing arrangements are both simultaneously. However, different countries are often due to historical traditions and different stages of development have different emphases. U.S. and UK have established market economy countries as developed capital markets, resource allocation close to perfect competition, often based on a system to form the direct capital financing based model. In Japan, Korea and other Asian countries, industrial development planning guidance by the government intervention, financial and industry have established a risk-sharing mechanism for government participation, the bank shares in the enterprise,[link widoczny dla zalogowanych], and actively participate in business, between banks and enterprises is a vital The chain-transfer relationship. So that its financing model is based on credit system can only be based on indirect financing, non-financial enterprises rarely have the opportunity to use capital markets financing, this can only be turned to credit intermediation through commercial banks. Therefore, until the 70s of this century, Britain and other countries carried out by corporate bonds and equity accounting for direct financing of enterprises 55.60% of external financing, indirect financing through bank intermediaries accounted for 40 --- 50%, while Japan and other Asian countries, the opposite Japan's indirect financing in the proportion of external financing of about 80-95%, only 15-20% of direct financing. 70 years later, the situation was the reverse occurred in the slow change: British and American enterprises to increase the proportion of indirect financing, Japanese companies have increased the proportion of direct financing. (B) the reform so far, China from a planned economy to a market economy under the historical conditions of the transition, the market mechanism in the process of gradual improvement, business financing are constantly changing. In the traditional planned economy system, the state Financial behalf of the Government-led national economic performance direct injection of capital, and through a variety of mandatory planning and administrative measures firmly in control of the configuration and the flow of social capital, the nature of financial market was negative, completely into the planned economy, the client tools, then, not to mention the market of independent choice of financing. With the further deepening of structural reform,[link widoczny dla zalogowanych], the process and operation of the national economy has undergone major structural changes, mainly in: (1) distribution of national income, the state finance to participate in the proportion of national income distribution in 1978 dropped to 30.9% 11.5% in 1997, from the gradual transformation of production and construction for the Fiscal Fiscal debt and eat, while the national income distribution to businesses and individuals continue to strengthen the trend of tilt, resulting in a reduced ability to finance the allocation of resources. (See Table 1) (2) in the financial and business relations, finance, as finance from the original assets configuration. And decisions by the direct impact on the structure of assets and liabilities of enterprises investment in fixed capital source structure, the proportion of bank loans increased year by year, especially in 1985, All rely on the liquidity of credit funds. (Table 2) can be seen from Table 2, after 1980, business fixed investment credit funds account for the proportion of the source is always more than 23%, while the self-financing also comes from the fact that some credit funds. This will form in the economic operation of indirect financing of bank-led financing, and become a kind of social capital as the support, the National Bank focused on lending, state-run enterprises . National income distribution change (%) 1980 1,985,199,019,951,996 government enterprises 2927231110 6782829 6566696161 residents taken from the %) 1990 1985 1981 1995 1996 1994 Total investment 100,100,100,100,100 100 countries budgetary revenues 38.6 23.98 13.20 4.93 23.04 5.00 4.62 23.62 25.46 domestic loans 23.66 23.65 13.6 foreign investment 5.4 5.27 9.11 7.11 7.89 6.73 42.4 self-financing and other 65.00 47.71 54.06 62.51 63.45 6 From 1997, analysis in two ways: First, asset-liability ratio of state-owned enterprises increased year by year, the fixed assets of state-owned enterprises an average of 70% debt ratio, liquidity debt has reached an average of 80%, on the whole will become a high risk running all liability company, or even insolvent enterprises. This is because almost only through the corporate finance bank, part of its capital assets and no source of funds can not be injected into the channel; the other hand, the main result of this system of indirect financing is not as developed in the same establishment on the basis of rational constraint, and the financing system of supporting the benign economic mechanism has not been established. Over the past decade, mainly by delegating powers and benefits of state-owned enterprise reform in the enterprise and initiative, they also formed to some extent, bank credit funds of state-owned enterprises to eat the capital efficiency, the formation of capital debt structure of the imbalance, increasing the difficulties of state-owned enterprise reform. Second, due to institutional reasons, the bank must ensure that the funds need to focus on state-owned enterprises, and state-owned enterprise borrowers assume financial responsibility, or even just by not also not responsible, so that the gradual softening of the bank's credit constraints, low efficiency of enterprises with high debt due to serious business losses, the inevitable bad debts to rise to the bank. According to estimates, the current non-performing loans accounted for the balance of bank loans to state-owned enterprises 25-30%, the four major state-owned commercial banks late, bad debts, bad loans accounted for 20% of all loans, if the situation did not improve, the state-owned capital of commercial banks will be exhausted. Meanwhile, industry and enterprise restructuring in the balance of payment accounts chaos, as well as a few years ago was once the an increasing number of non-performing assets, the formation of increasingly huge inflationary pressures within the bank's monetary system, the long-term, the potential systemic risk increases, leading to social resources and inefficient use of the highly unstable macro economic performance. Now, we actually rely on government authority, the credibility of the state-owned commercial banks, the government has a strong ability to absorb the funds, if certain objective conditions change, the commercial banking system risk and its economic and social consequences are unimaginable. Deeper look at these issues, the real market economy and state-owned economy forms of conflict between the only way out is to further deepen reform to achieve financing to market financing from the planned changes in the market mechanism in the allocation of funds in the money base role. (C) market-based financing system, direct financing and indirect financing are two ways to have the length, the two complement each other, mutual promotion and mutual balance. To address the current state-owned enterprises and banks are facing problems, the best option is to develop direct financing, the capital of state-owned enterprises to market financing activities completely. First, the reform of state-owned enterprises need to develop direct financing channels for the widening of corporate finance, corporate debt structure optimization, the implementation of capital investment projects are beneficial to the expansion of direct financing. At present, China's state-owned enterprises a serious lack of capital, has become a serious problem of the overall situation of reform. At present more than one third of the state enterprise capital ratio below 10%, and some even full debt management. A serious lack of capital, state-owned enterprises have been increasingly affected the development of enterprises, the normal operation of the financial system and the whole national economy, a virtuous circle. The government issued a series of state-owned enterprises in the capital increase for debt reduction, merger, bankruptcy, and encounter other policy measures, but because of the state-owned enterprise capital gap too large, these measures are hard work. The state-owned enterprises can be used to supplement the funding sources of social capital should be more adequate, in particular: First, with the profound changes in distribution of national income, the income of residents in the capital showing a clear trend, individual residents have increasingly become the main body of savings and investment, (see Table 3) to the end of 1998 the balance of savings deposits of urban and rural residents (including foreign currency) has more than 5 trillion yuan; II capital adequacy of international capital markets, while China's vast market for international capital still has a strong appeal. However, as a single investment, the financial assets of residents have formed about 85% of bank deposits, loans to businesses through banks and the formation of corporate debt, which is the company with high debt, low capital for historical reasons. Meanwhile, the state-owned enterprises in the international capital markets has also been the development of conditions and the high cost of financing constraints. Therefore, only vigorously develop the capital market and expand direct financing in corporate finance in the proportion of residents can be more effective in the hands of the financial assets and international capital into the company's capital. Table 3 Structure of domestic savings (million) savings deposits of urban and rural residents increased the amount of savings deposits in 1995 and 1994 6315.3 21518.8 8126.1 5306.9 38520.8 8858.5 29662.3 9479.4 1997 48000.2 1996 1998 53407.1 Second, substantial improvement in our financial structure required to expand direct financing from the financial system side of reform, and deepen the capital market, expand direct financing, construction and reasonable financing structure is decentralized bank risk and improve relations between banks and enterprises, thereby promoting the reform of state-owned commercial banks an important part. As described earlier in this article, as State-owned enterprises mainly from state-owned banks credit funds, so that enterprises with high debt, low efficiency caused heavy losses, the inevitable shift bank, the formation of non-performing assets of banks. The increase in direct financing and reduce the enterprise funds in the proportion of credit funds to improve business efficiency, improving corporate balance sheet structure is the fundamental way to improve the relationship between banks and enterprises. On this issue, some scholars believe that the direct cost of financing is higher than the indirect financial costs, it should now be to deepen the reform of state-owned commercial banks to promote financial reform as the focus should not be too much emphasis on the role of direct financial funding, which we should recognize that the reform of state-owned banks with high debt related to the numerous national survival of state-owned enterprises can not be completed in a short time, and in this gradual process, to develop direct financing and diversion of funds to the community, reduce the state-owned banks pressure on funding state-owned enterprises, state-owned banks are facing systemic risk will be reduced. In general, direct financing of the social cost of individual financial risk, but not yet completed the transition in the system, there is no fundamental change in relations between enterprises and government banks and enterprises, the Bank of indirect financing is more difficult to get rid of the systematic risk,[link widoczny dla zalogowanych], both compared to , the size of the risk cost is self-evident. It can be said to fundamentally eliminate the risk of emergence of hotbeds of the financial system, improve our financial structure, broaden the channels for the conversion of savings to investment, improve the efficiency of capital formation, and promote optimal allocation of resources and capital flows, we must develop direct financing, which not only their own survival, but also directly affect the success of the financial system. Of course, we should note the one hand, focuses on accelerating the development of direct financing, we must recognize that China is still a developing country, the economy is still in the take-off stage, indirect financing in the financing system still dominate, if only emphasizes direct financing, banks should ignore the role of indirect financing, the economic development of China will face greater risks; the other hand, the development of direct financing is with perfect capital markets, especially stock market closely together, should make clear to deepen capital market not only to change our corporate capital injection method is the more important sources of change through the capital, can effectively change the operating mechanism of state-owned enterprises, and improving operational efficiency of capital, the gradual elimination of cumulative risk of the financial system causes the formation of the system , it is not merely to the stock market process. In short, insist on a correct understanding of the basis to develop direct financing and indirect financing continue to improve in order to establish suitable for business development and economic operation of the new financing system, we will see: corporate debt ratio will fall, capital will will be strengthened; risk of social concern and social investors will monitor the economic efficiency of enterprises, and gradually on the basis of efficiency in the banking system to resolve non-performing assets to avoid financial risks, and ultimately from the Capital operating economics, (D) The foregoing analysis, the indirect financing is currently based in the premise, should take effective measures to improve the proportion of direct financing in order to guard against and defuse financial risks, improve the quality of economic growth. First, direct financing behavior should be standardized to promote the healthy development of direct financing market. To speed up the legal system related to direct financing, laws and regulations as soon as possible, clearly investors, intermediaries, financiers and other market rights and obligations of the parties, regulate the financing and operation of intermediary service organizations, protect the legitimate rights and interests of investors. Direct financing should be strengthened standardized management of enterprises, strict disclosure of corporate information, standardize enterprise behavior of profit distribution. Through the development and implementation of strict and orderly market rules to ensure the long-term stability of the direct financing market development. Second, actively cultivate institutional investors. Not only in specifications and strict management of the premise, allow insurance companies, social security funds and other institutions to enter the securities market, it should speed up the specification securities investment funds, to attract more residents to securities investment, accelerate the transformation of savings to investment. Third, a reasonable guide and regulate the internal financing of SMEs and shares. In the current economic background, internal financing and the shares of SMEs need to exist, but can not make it in a disorderly state of development, to regulate and guide. Fourth, under the premise of the specification to accelerate the commercial paper business. Steady development of bank acceptance bills, and gradually try commercial acceptance bills, notes spread risks and promote commercial bills of credit; systematic notes the establishment of regional and national market and improve liquidity of the Notes. Fifth, the pace of industrial investment funds established. Should be based on national industrial policy, the establishment of a number of industrial investment funds, especially venture capital funds. The funds raised will be used for open use and high-tech transformation of enterprises to promote industrial upgrading, and cultivate new economic growth point. References: (1) Zhou Tianyong, , September 1998 (3)