Marketization of capital is the process during which economic
entities make their investments and financings on the basis of
market rules. In a country in economic transition, marketization of
capital also serves as the process to reform the investment and
financing mechanism. Compared to the traditional highly-centralized
system of planned economy under which the whole society's
investment in fixed assets and other funds were allocated free of
charge according to investment plans and financial budget of the
government, marketization of capital means that the funds used for
the whole society's investment in fixed assets or enterprises'
expanded reproduction are no longer coming from governmental
appropriations, but to be raised by ways of using commercial
credits, securities and foreign funds with compensation, with an
aim to eliminate the distortion of capital price that the
government intervention may bring about. With the continuous
deepening of the reform toward a market-oriented economy system,
capital being a production factor, its free flow and efficient
distribution must be performed toward the price-oriented goal under
the regulation of market supply and demand.
Ⅰ.Comprehensive Analysis on Marketization of Capital in
China
The analysis on the maketization of capital in China can be
started from either of the following aspects: capital distribution,
or its flow, and capital acquisition, or resources. During the
process of establishing and improving the socialist market economy
system in China, the marketization of capital mainly shows that the
government gradually withdrew from its position as the sole capital
supplier to realize the diversified capital supplying, for this
reason, our analysis shall be mainly made in terms of capital
resources. According to the current statistics means in China, the
total investment in fixed assets mainly comes from the following
aspects: state budgetary appropriation, domestic loans, foreign
investment, fundraising and others. Next, we shall analyze the
developing conditions of the marketization of capital in China and
study the important role of the securities market in the
marketization of capital.
(l) State Budgetary Appropriation
State budgetary appropriation is the main tool by which the
government participates in the investment, and its scale and
investment direction are still controlled by the government through
plans. So, the proportion of its investment scale in the total
investment in fixed assets by the society as a whole may serve as
an important index measuring the marketization of capital. However,
we should make sure which factors determine this ratio: the
systematic factors or the short-term policy regulations? In case
the systematic factors put this ratio in a large number, it would
mean a low or declining degree of marketization; in case the policy
factors lead to the changes of this ratio, then no conclusion could
be drawn in respect of the degree of market-oriented development of
investment and financing. In 1996, the proportion of state
budgetary appropriation in the total investment in fixed assets
reached its lowest point in history, accounting for only 2.7
percent, which means a considerable progress in marketization of
capital in China. After the Asian Financial Crisis broke out in
1997, the Chinese government adapted aggressive monetary and
financial policies in order to keep the economy growing in a
continuous, fast and healthy way. The increases in the issuing
scale of construction bonds and in the governmental investment
scale resulted in an increase in the ratio of budgetary
appropriation directly controlled by the government, reaching 6.7
percent in 2001. However, the increase of the ratio cannot be taken
as regression in the marketization of capital in China. When faced
with the economic depression, the western developed countries also
carried out aggressive fiscal policies, resulting in increased
direct or indirect investments by the government. which had nothing
to do with the systematic factors.
(Ⅱ)Domestic Loans
Since the state has changed its policies in providing funds to
state-owned enterprises from appropriations to loans, the original
free appropriation relation between state-owned enterprises and
banks was completely broken, and was replaced by credit relations
on commercial terms. So, loans for the domestic banks are the
important channel and main mark for resources of marketization of
capital in China. The proportion taken by domestic loans may be
partially used to measure the marketization of capital.
Combining both the above tables, we can draw the following
conclusions: firstly, the loans for the state policy banks, viewed
from either the absolute quantity or the relative quantity,
witnessed a reducing trend since 1997; while there has been a sharp
increase in the loans from commercial banks, which reached 92
percent in 2001, occupying an absolutely dominant position. This
means a remarkably high degree of marketization of capital in
China. Secondly, the ratio of domestic loans in the total social
investment in fixed assets has been basically kept at about 20
percent since 1995, reflecting the supply and demand of funds
between enterprises and the banks are on the whole market
determined. Thirdly, Proportion of State budgetary appropriation in
total investment in fixed assets, it is clear that the ratio of
loans has remarkably surpassed the funds by state budgetary
appropriation, reflecting an increased ratio of those economic
entities that make their financings through market.
The increased ratio of commercial loans in the total volume of
loans and the stabilized ratio of policy loans reflect in a way
that marketization of capital in China has reached a higher level.
In 1995, the Commercial Bank Law of the People's Republic of
China clearly defined that the commercial banks would make
their own management decisions, take their own risks, bear full
responsibility for their own profits and losses to achieve balance
by their own efforts. They are to establish a well-designed
anti-risk mechanism and independently take the civil liabilities
based on their total property held by the legal person. Therefore
in providing loans, the commercial banks are aiming at higher
profits and less risks under relatively clearly defined property
rights, and the traditional means by which the state freely
provided the appropriations according to plans has been basically
changed. In 1994, the State successively established the China
Development Bank, the Export-Import Bank of China and the China
Agricultural Development Bank, which are the policy banks in China.
The policy businesses formerly conducted by the four major
state-owned banks were transferred to these policy banks, mainly
aiming at cooperating with the state industrial policies to speed
up the development of those areas in which the private funds are
not interested, to lead the development of basic industrial areas,
to support the disadvantaged industries and to optimize the
economic developing environments for higher international
competitiveness. In respect of decision-making concerning the
directions, the sizes and the interest rates of loans to be
granted, policy loans are heavily influenced by government policies
and are not to operate in full compliance with market rules. So,
the ratios of the policy loans and commercial loans shown in the
above table may basically reflect the degree of restrain in the
loan market of China's banking industry.
According to relevant statistics, the majority of bank loans
flowed into the state-owned sector or the sectors that were mainly
state-owned. Some people therefore believed that this was caused by
an incomplete reform in the state-owned commercial banks and the
discrimination of loan against the individual and private sectors,
indicating a very low degree of marketization of capital in China.
In fact, the flow of loan relates to both the lenders and
borrowers. With the reforms in hank property mechanism and
operational mechanism, the state-owned commercial banks shall treat
enterprises of different ownerships equally. Due to the small size
of the individual and private enterprises and quite a number of
them scattered in the small townships and even in rural areas, the
trading cost for the bank credits is comparatively high. While
state-owned enterprises are centrally located in the big and medium
cities and engaged in the traditional industrial areas, and the
banks are relatively familiar with the investing profits and
developing prospective in these areas leading to a relatively high
information transparency and low trading cost. So, there exists a
higher percentage of the state-owned sector in the commercial
loans. But in the recent years, there has been a trend to increase
the loans for the non-state-owned sectors, and this problem will
solved gradually.
(Ⅲ) Foreign Investment
The level of the foreign investment is the reflection of a sound
market environment. Meanwhile, the foreign investment is aimed at
maximization of profits, and its whole operation is
market-oriented. So, the ratio of the foreign investment in the
total investment in fixed assets is able to reflect the degree of
marketization of capital in China to some extent.
Judging from the average developing level during the past 10
years, the ratio of the foreign investment to the total investment
in fixed assets reached 8.21 percent, higher than the record 6.7
percent that the ratio of budgetary investments has reached after
China adopted the positive fiscal policies. Although there has been
a decrease year by year in the ratio of the foreign investment to
the total investment in fixed assets due to the bad effects brought
about by the Asian Financial Crisis since 1997, the actually
employed foreign investments still reaches US$4.67 billion in 2001,
of which the direct foreign investments accounts for US$46.88
billion, ranking 8th place in World Investment Report of the
United Nations Conference on Trade and Development and
becoming the leading one among the developing countries.
(Ⅳ)Enterprise-Raised Funds and Other Financial
Resources
Enterprise-raised funds for expanded reproduction consist of
both the accumulation of their own funds and the stock financing.
Although their own funds are not acquired through the stock
financing, they contain opportunity costs as well and shall be
allocated by referring to such market price factors as interest
rates and dividends rather than free of charge. so it may be
considered to be market-oriented.
In view of the changing situations during the past 10 years,
this portion of funds witnessed a slow-growing trend basically, and
it reached 69.6 percent in 2001, which was the highest level since
the reform and opening up in 1978. It indicated that the
marketization of capital in China was on a higher level and that
the method to raise funds by the Chinese enterprises was
improving.
(Ⅴ) Direct Financing
The development of all countries around the world shows that
there are diversified channels for enterprise financing, including
not only the indirect financing method characterized mainly by the
bank loans, but also the direct financing method through securities
market. The emergence of bond market and stock market marks that
the financial transaction activities begin to operate according to
the market rules, and show enormous market vitality, and its
development level becomes the important standard measuring the
marketization of capital in a country. China speeded up the
development of the securities market during its reforming process.
In 1990, when China had just established its stock market, there
were only 10 listed enterprises; by 2001, the listed companies in
China had reached 1160, with a total market value amounting to
4,350,000 million yuan, and a circulating market value of 1,450,000
million yuan. The speedy development of the capital market not only
provided a strong support of funds for China's economic growth, but
also remarkably promoted the marketization of capital in China. We
shall discuss the development of the securities market in the
following aspects:
1. Rate of Securities Financing
The rate of securities financing is the ratio of the market
value of stocks to GDP. It is used to measure the relation between
direct financing and economic development and is also an important
index reflecting the marketization of capital. Because of the
non-circulation of state-owned shares and corporate shares, we
shall discuss the maketization of capital by way of presenting the
ratios of total market value and market price respectively to
GDP.
2. Proportions of Direct Financing and Indirect
Financing
The rapid development of the stock market is also reflected in
the changing ratio between funds raised through stock sale and
added volumes of bank loans. This ratio in fact reflects the
financing structure in the whole capital market and the financing
situations in the securities market, and also indirectly reflects
the effects that different means of financing may bring about in
the field of enterprise ownership structure, operation
achievements, restraints on operator's behavior.
The relative data shows that there is a steady growth both in the
ratio between funds raised in Chinese mainland and added volumes of
bank loans, and in the ratio between funds raised in Chinese
mainland and added volumes of state-owned bank loans, which
indicates that the proportion of direct financing is increasing,
funds raised through stock sale is playing more and more important
role in the capital formation, and the free flow and efficient
allocation of capital are upgrading. A mechanism of "voting with
one's feet" is gradually strengthened, and the capital market is
becoming more and more active.
(China.org.cn November 7, 2003)
