Investment Fund and Financial System Reform

Author: Luo Songshan
Publisher:
Publish Date: 2003-01-01
Features: The comparative case analysis of fund development in the United States and Japan in this book is also a distinctive feature. The author pays special attention to examining the differences in the behavior of funds in the stock markets of the two countries and their varying impacts on market stability. Using a wealth of empirical evidence, he demonstrates why the healthy development of funds must be based on a standardized financial market and sound legal regulations. Whether funds can fulfill the function of stabilizing the market depends on certain conditions. In an unregulated and immature financial market, the operation of funds not only fails to act as a stabilizing factor but may instead become a catalyst for greater market instability. Building on this theoretical research, the author re-examines the main issues in the current financial system reform in China. Through his analysis, he shows that the policy-based financial system in China, which is dominated by banks, suffers from significant functional misalignment and gaps, serving as the root cause of many problems and contradictions in the development of the capital market. This situation has led to the fragility of the existing financial system, as well as inefficiencies in financial operations and the allocation of resources within the financial system. The new round of financial system reforms in China faces many new environmental conditions—economic surplus, joining the WTO, financial globalization, and so on. As a result, an urgent issue arises: the basic approach to financial system reform should shift from "institution over function" to "function over institution." A sound financial system should minimize the use of bank assets to undertake long-term capital investment functions, instead shifting toward relying on the capital market to establish financing channels for long-term capital investments. The development of funds in China is not only aimed at stabilizing and developing the capital market but, more importantly, at establishing a new type of market-oriented financial system.