chapter  1
24 Pages

From extraction to inclusion

A new analytical framework
ByChangwen Zhao, Hongming Zhu

Chapter 1 reshapes the relationship between the financial sector and the real economy by offering a new framework for financial reform. Firstly, we introduce the term financial outlook to refer to people’s idea about the relationship between the financial sector and the real economy. Secondly, we summarize three financial outlooks: financial centralism, financial cooperation and financial coopetition. As to financial coopetition, it is argued that besides cooperation, the financial sector is also in competition with the real economy, mainly in terms of production factors, profits, preferential policies and corporate decision-making behaviors. This chapter describes China’s financial system as an extractive and inefficient one, and puts forward a two-dimensional financial reform model which maintains that China’s financial reform should not only take consideration of improving financial efficiency or marketization, but also pay enough attention to minimizing financial sector’s extraction or negative externality. We propose a financial reform model based on financial cooperation and compare it with models based on financial competition.