Development Finance: A Financing Platform Between the Government and the Market

Year 2020, Volume: 40 Issue: 2, 677 - 699, 31.12.2020

Liu Weiping Liu Daren

Abstract

The core of development finance with Chinese characteristics is that it is a “bridge” between the government and the market. Development finance addresses the phenomenon of “market failure” due to information asymmetry and alleviates the problem of “government failure” due to the inefficiency of fiscal subsidies and other funds through government intervention in financial markets. Meanwhile, it integrates the advantages of commercial finance and traditional policy-based finance. It is a form of finance that was introduced in response to institutional backwardness and market failure and in order to safeguard national financial security and enhance economic competitiveness. The core mechanism of development finance is to build a government credit system through cooperation between policy banks and governments and by relying on government-organized credit enhancement, and to form a financing mechanism consisting of “project selection by the government, development finance incubation, and the realization of market outlets”. Development finance combines project construction with market building, makes initiative on the part of the government the focus of the market-oriented operation of development banks, utilizes national credit, and regulates market failure and promotes balanced economic development through reasonable arrangements for credit volumes and structures.

Keywords

Development finance, Commercial finance, Policy-based financing, Government-organized credit enhancement, Bank-government cooperation

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