This article is carefully excerpted from five articles in "Congratulating the 90th Birthday of Professor HUANG Da", highlighting Professor Huang's essence of thought and outstanding contribution. Professor Huang is a worldwide renowned theorist with in-depth knowledge in both Chinese and Western literature. He is also an extraordinary educator of deep thought and magnanimity. In particular, as the main designer of the "Big Finance" framework, Professor Huang has made exceptional contribution to the building up of the Finance subject by improving the subject framework and enriching the subject content. Professor Huang has been the mainstay of the development of the Finance subject in new China with far-reaching influences.

As new heights of focus are given on higher education and talent fostering in the Third Plenary Session of the 11th Central Committee, led by Governors of PBOC, all the Director-Generals in Education Department and Director in Textbook Division, have been paying more significant emphasis on textbook construction. The author is involved into planning, compiling, examining and approving on the International Finance textbooks, and he also witnesses and experiences, since the opening up and reform policy was conducted, the professional textbook and subject construction. The paper is a study on the challenges, in the current stage, on international finance textbook and subject construction. The challenges include basic principles on compiling International Finance textbooks, and the defining of International Finance as a subject. The paper is the fruit of the author by practicing and thinking, for so many years, on International Finance textbook and subject construction.

China’s economic development has entered a new normal. It puts forward higher challenge for the regulators on how to push the banking industry to adapt to the new normal. Ten relationships need to be well managed, since they are very important for carrying out banking regulations under the new situation. In terms of regulatory objectives, it needs to find the right balance between preventing financial risks and serving the real economy. In terms of regulation positioning, the regulatory policy needs to harmonize with macro-control policies, such as monetary policy and fiscal policy. In terms of basic regulatory methodology, it needs to maintain the combination of micro-prudential and macro-prudential supervision, balance between enhancing supervision and encouraging innovation, and focusing on scientific supervision while improving the art of supervision. In terms of regulatory approach and specific method, it needs to felicitously handling the following five relationships, namely the relationship between principle-based supervision and rule-based supervision, between consistent and differentiated supervision, between institutional supervision and functional supervision, between international standards and China’s reality, between regulatory policy and supervisory practice. Only if the above ten relationships are properly managed can we further improve the effectiveness of banking supervision and make finance play the core role in modern economy.

Good finance and good society is a direction and a destination to which financial reform and development in China should be guided to go, and also a new requirement that an economy and society should have. The paper firstly presents why the issue of good finance and good society needs to be raised in the contemporary era; and then recalls some financial approaches improving society, taken by developed economies as well as the related research done by Robert Shiller; and furthermore, analyses some cases of microfinance and their significance in China after introducing Yunus’ model; and finally provides an exploring explanation of the relationship between good finance and good society. The conclusion is that good finance means that financial industry is able to promote a society with fairness and justice. The financial structure in China is about to go to that direction.

In this paper, distinct ideas and solutions in several theoretical and practical points are put forward on the development of the current banking industry. Including: Starting from China’s actual conditions, to make some elastic relaxation on implementing New Measures of Capital Management; Speed up the pace of financial comprehensive operation and promote domestic commercial banks’ business transformation; Set up financial management committee, transform from supervised respectively to supervised overall and from institutional supervision to functional supervision; Promote the innovation in hedging products and tools, adopt a negative list for approval of banking innovation; Pay attention to the excess capacity and the bank creditor’s rights protection in the process of local government debt management; Insist on banking system’s market-oriented reform, put it in perspective with regard to the bank profits, “monopoly” of state-owned banks, realize the market pricing of bank rate,etc.

Due to prominent externality of commercial banks, the negative external effect of the banks’ bankruptcy is significantly greater than that of other non-banking enterprises. Particularly the failure of large-scale banks would bring on chain reaction of entire financial system, resulting in some systematic risk, and even severe economic crisis. In the circumstance that a bank is confronting risks leading to technical or economical bankruptcy, actual bankruptcy and liquidation would hardly be carried out, instead the government would bail out the bank regardless of cost by the means of fund injecting, re-lending, credit guaranteeing or asset purchasing. On the other hand, it is widely criticized that the moral hazard is induced by bailing out “too big to fail” banks and taxpayers are forced to bear financial cost of saving the banks taking excessive risks. In order to effectively balance of risk and return during bankruptcy processing, comprehensive competency of banking system and efficiency of financial market should be paid more attention to enhance, and a multi-line defense mechanism preventing banks from failures should be established by strengthening the legislation to regulating bank failures, carrying out macro-prudential regulations in a forward-looking fashion, optimizing “troubled banks” resorting tools, and improving banking governance in the micro management level. This mechanism would be so designed for the residual risks to be restricted within a tolerant range through various means of risk controlling and mitigating. Recent international banking practice since the financial crisis in 2008 has shown that a risk management framework avoiding banks from failures by risk preventing, risk mitigating, and orderly exiting in a pre-cautionary and forward-looking fashion has come to the fore. The enhancement of bankruptcy risk governance and fundamental financial risk managements is a critical issue for financial reform in China as well as a pedestal further boosting the financial market-oriented movements.

This paper empirically examines the impact of real estate investment on the efficiency of resource allocation in the manufacturing sector. Using data from the Annual Survey of China’s Manufacturing Firms, China City Statistical Yearbook and the Urban Household Survey, we find that the more the investment of fixed asset in real estate, the lower the efficiency of resource allocation in the manufacturing sector. The paper demonstrated that one important reason is that the SOEs get the loan with low cost, invest in real estate and crowd out the investment in industry.

Based on private firms’ data, this paper measures the total factor productivity(TFP)from the micro-perspectives. Furthermore, we study the effect of IPO on enterprise’s innovation behaviors and TFP from the perspective of point of institutional incentives. First, the within-firm test finds that TFP declines significantly after IPO. Second, to overcome the life cycle effect, we reselect the sample by propensity score matching and perform the between-firm test. Other things being equal, the long-run TFP of public firm is lower than private firm. Finally, we separate the whole sample into two subsamples based on CEO duality, intellectual rights protection system and inventors’ departure, finding that all three incentives (i.e., managerial incentives, information disclosure incentives and inventors’ incentives) play important roles in the effect of IPO on TFP. Our findings reveal that firms face a complex trade-off between easing access to capital and decreasing productivity during the transition to public equity markets.

The interest rate liberalization means that the mode of financial regulation is transforming from “price control, quantity control ”into “price liberalization, moderate scale”. Market risk will rise in the foreseeable period of time and to have a significant impact on the systemic risk. In this paper, we built a market risk curve reflecting the relationship between the changes of interest rate and market risk, using DSGE model to simulate the impact of interest rate changing to the welfare of major economic entities which is based on the financial interests. Our main conclusions are as follows: The liberalization of deposit interest rate would have a greater impact on market risk and should be carefully promoted in the current effective range of changes in interest rates; Deviating of the management of interest rate from the equilibrium level exacerbates the impaction of interest rate fluctuations to the market risk; The interest rate liberalization sets up a mechanism of cost-sharing among various kinds of economic agents through the changes of financial interests such as financial cost and investment income; A corresponding interest rate liberalization mechanism should be established which is risk-related and can promote the agents’ ability of self-mitigation of risk.

Whether enterprises’ R&D investment can receive adequate funding from financial market is receiving much attention from both academic field and practice field. In addition, it’s also an essential question in building an innovation-oriented country. This paper theoretically demonstrates how competitive market structure of banks can influence R&D financing constraints, based on real situation in China that competition are found between small and medium-sized banks and the big four state-owned banks and emerging commercial banks. We use listed firms in Chinese A-share stock market from 2002 to 2009 as sample, and make conclusions that competitive banking structure can help to ease R&D investment financing constraints and this influence is more significant in small, private and high-tech firms. This paper can contribute to understanding how financial development promotes economic growth and establishing related policy.

Using a sample of A-share listed firms in China for the period 2004-2012, this paper investigates the relationship between monetary policy and stock price crash risk, and how the fund liquidity shortage and the stock liquidity shortage influence the relationship. The results find that, the tight monetary policy will significantly increase stock price crash risk, and the fund liquidity shortage and the stock liquidity shortage will enhance this positive relationship. It is further found that the other institutional shareholding (other than open-funds shareholding) will reduce the positive influence of the tight monetary and the fund liquidity shortage on stock price crash risk. Our paper helps enrich the literature in stock price crash risk, and also provides implications for both the formulation of monetary policy and the liquidity management.

This paper analyzes the relationship between cash dividends and stock price crash risk in China’s listed firms, combining the effects of actual controlling shareholders’ control rights structure. We find that the over-payment of cash dividends is positively related with stock price crash risk. In addition, the divergence between control rights and cash flow rights aggregates the positive relationship between cash dividends and crash risk. The empirical results reflect the shareholder’s governance effects embedded in cash dividend policy. Simply increasing cash dividend distribution ratio might not be an effective method to protect investors. For regulators, the real core is to improve corporate governance, so that the dividend policy can truly conform to the interests of all the shareholders, rather than be manipulated by some specific shareholder.

This paper attempts to investigate the impact of demographic structure on household demand for life insurance using the micro-level data of China Household Finance Survey (CHFS). Our empirical results show that the proportion of the elderly in a household has a negative effect on the household’s demand for life insurance. However, the proportion of children in a household has a positive effect. We also find that a smaller household size can reduce the household’s demand for life insurance. Our findings shed new light on the problem of population aging and one-child policy in China.

The effect of debt governance on investment efficiency under tight monetary policy is investigated using panel data from listed companies in China. The results suggest that the debt governance functions uncertainly due to soft budget constraint, therefore, are unable to inhibit enterprise’s inefficient investment in general. Further investigation shows that this uncertain functionality comes from the unbalance contributions from different aspects of debt governance. Among them, the trade credit and short-term debt can efficiently suppress the enterprise’s inefficient investment but the bank loans, corporate bonds, and long-term debt cannot. Moreover, further investigation shows that tight monetary policy enhances the debt governance effect. Finally, this paper develops reasonable recommendations on how to improve the efficiency of debt governance and supervise the listed companies through developing the law system, bank reform and monetary operation.

Coordination of Financial Reform, by Dr. SHENG Songcheng and LIU xi, gives a comprehensive depict on interest and exchange rate reform, and Capital account opening. This book has great significance for Financial Reform of China.