Financial System, Economic Management and Soft Budget Constraints

As a direct result of the sub-prime loan crisis, in September, 2008, the global financial crisis broke out in the United States. There are some internal relationships between the current crisis and the international financial system including international payment system and national payment systems. From the beginning of 1980s to the mid 1990s, China had sought to reestablish its own financial system from the central-planed financial system imitating the Japanese model, so-called bank-centered financial system, compared with the market-centered system, the so called Anglo-Saxon-based financial system, typically existing in the United States and the United Kingdoms. But China changed the reform direction to the market-centered system later in the mid 1990s under the new international economic background. This paper takes financial system, economic management, soft budget constraints as objects of study, through analyzing characteristics of the bank-centered system and the market-centered financial systems in the world, urging that China should accelerate financial liberalization in order to defend its financial system from financial risks.