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The financial system with an "extractive feature" and its detriment to innovation and economic growth - An analysis based on the concept of financial competition and cooperation (No 58, 2015)


By Zhu Hongming, Research Institute of Finance & Zhao Changwen, Research Department of Industrial Economy

Research Report No 58, 2015 (Total 4743)


The purpose of this paper is to make clear the negative effect mechanism yielded by the finance system with an extractive feature on innovation and economic growth. At present, China's financial system has a relatively strong extractive feature. In light of the concept of financial competition and cooperation, resource distribution can be divided into two links. The first is the initial distribution, i.e., the distribution of factors between finance and the real economy. The second is redistribution, i.e., the distribution of resources disposable to the financial system between different sections of the real economy. In the financial system with an extractive effect, there is serious distortion in the initial distribution, and too many innovational factors are drifted away from the real economy and excessively distributed to the financial industry, due to the siphon effect, while redistribution fails to eliminate the distortion, resulting in the decrease of distribution efficiency of the economic system. In addition, financial system with an extractive effect imposes negative impacts on innovation and economic growth through stakeholders mechanism, erosion effect, corporation financial system and financial instability mechanism.