Guangdong’s Financial Policy in Transformation to a Matured Market Economy

Abstract

Guangdong is the first province to call for a market economy and engage in the price reform. While China is shifting from a planned economy to a market economy, Guangdong is already a market economy at large. However, Guangdong’s goal is to catch up with the Four Little Dragons (Hongkong, Singapore, Taiwan & South Korea) in Asia, thus Guangdong plans to improve the market economy.

What is a matured market economy? A matured market economy requires a sound market mechanism with four conditions; (1) the enterprise has a hard budgeting restraint; (2) the economy has some idle resources; (3) there are updated transportation and communication networks for production factors to move liberally; (4) there is only one price for one commodity or service and the price reflects its value in relationship to supply and demand. A matured market economy also requires a complete market system with many uniform liberal and coexistent diversified markets.

The difficult points for Guangdong to transform into a matured market economy lie in: (1)the sluggishly developed financial market shown in the interbank loans, foreign exchange transactions and securities transactions; (2)backward transportation and communication facilities in terms of the present demand for their quantity and quality; (3)state enterprises with soft budgeting restraint

The financial policies that Guangdong should pursue are: (1)to ease the credit quota restraint or to allocate separate credit quotas for Guangdong like Shanghai and Shenzhen; (2)to establish the Southern China financial center engaging in funds settlement, foreign exchange transactions, securities transactions and offshore deposits and loans; (3)to retain the rights to adjust interest rates to a certain extent like Shenzhen and Wenzhou.

In a word, Guangdong has a lot to do to catch up with the four Little Dragons. To accomplish this there needs more liberal thought and more flexible policies.