ABSTRACT

Using a learning-by-doing overlappinggenerations model with production uncertainty of capital goods and credit constraints, this book depicts the match relationships between the export-promotion industrialization growth mode and the mobilizing monetary and financial system, explains the institutional reasons why monetary and financial distortions haven't hampered economic growth and financial development since 1978. In order to break through low income poverty trap and achieve economic take-off at the initialzation of reform and opening-up, China has to develop the mobilizing monetary and financial system to produce credit expansion incentives, mobilize saving and provide credit supports to all qualified borrowers. The core mechanism of mobilizing monetary and financial systems is the copying of low interest rate pooling equilibrium with the joint action of state implicit guarantee for financial intermediaries against bankruptcy of credit interest rate control and credit interest rate subsidy.

At the same time, China chooses export-promotion industrialization growth mode to realize credit expansion risk control mechanism. With the export-promotion industrialization growth mode, China's growth propulsion is from domestic production factor and capital accumulation enhanced by imported technologies. In such a growth mode, without taking the risk of technical innovation and market sales, China's economic uncertainty is mainly concentrated on goods manufacturing and such uncertainty decreases gradually through learning effect in the process of learning-by-doing. Due to relatively low economic risk, China can control credit expansion risk under state implicit guarantee. On one hand, China's low risk means investment timing has little value so that the credit expansion under state implicit guarantee can control the risk in advance through bank liquidating and provides the most convenient financing services for investment and production. On the other hand, advanced economies supply qualified saving instruments to pool and manage higher risk of technical innovation and market sales and finance for their current account deficits in their capital markets with adequate width and depth. As a developing economy, China reinvests the capital inflows in capital market in advanced economies', such as the United States Treasury Bond Market, to transfer its financial risk and suppress the excessive credit expansion. Therefore, with the help of financial macro prudential supervision, China uses two kinds of credit expansion risk control mechanism, including bank liquidating ahead of time and reinvesting the capital inflows in the United States Treasury Bond Market, to control credit expansion risk effectively.

With the help of coordination between the mobilizing monetary and financial systems and the export-promotion industrialization growth mode, China realized economic take-off successfully and became one of middle income economies in 2003 w ith a series of monetary and financial distortions. However, the rapid rise of domestic factor prices and the outbreak of the global financial crisis in the second half of 2008 exerted great pressure on China's transformation efforts on export-promotion industrialization growth mode, brought risks of full failures to mobilizing credit expansion risk control, and required the marketization transformation of this mechanism.

Key Words: Economic Take-Off Mobilizing Monetary and Financial System Export-promotion Industrialization Growth Mode Monetary and Financial Distortions Marketization Transformation