introduction. 1 1.1. Scope of the Study. 2 1.2. Methodology. 4 1.3. Organization of the Paper. 5 1.4. Limitations. 6 2. Theories of Financing. 8 2.1. Origination of Financing. 8 2.2. Impetus of Financing. 10 23 Roles of Financing. 11 2.3.1. Adjusting Surplus and Deficiency. 11 2.3.2. Facilitating Savings to Investment. 11 2.3.3. Promoting Effective Allocation of Resources. 12 2.3.4. Balancing Aggregate Supply and Aggregate Demand. 13 3. Analytical Framework. 15 3.1. Macro Economic Analysis. 15 3.2. Flow-of-Funds Analysis. 16 3.2.1. Sectoring the Economy. 17 3.2.2. Sources and Uses of Funds Statement for Specific Sector. 18 3.2.3. Flow-of-Funds Matrix. 20 3.3. Macro Analysis Vs. Flow-of-Funds Analysis. 21 4. Financing Situation of Sectors. 23 4.1. Financing Aggregate. 23 A Survey on Social Financing in China 4.1.1. Concept of Financing Aggregate. 23 4.1.2, Growth of Financing Aggregate 25 4.1.3. Financial Interrelations Ratio. 25 4.2. Financial Sector. 28 4.2.1. Financing Scale. 28 4.2.2. Financing Structure and Its Evolution. 29 4.2.3. Indirect Financing. 29 4.2.3,1 .Composition of Sources of Funds. 29 4.2.3,2 .Composition of Uses of Funds. 31 4.2.4. Direct Financing. 32 4.2.4.1 .Government Bonds. 32 4.2.4.2 .Corporate Bonds. 33 4.2.4.3 .Stocks. 33 4.3. Households. 34 4.3.1. Sources and Uses of Funds ofHouseholds. 34 4.3.2. Growth of Financial Assets. 35 4.3.3. Composition ofHouseholds, Financial Assets. 35 4.3.4. The Ultimate Fund Suppliers. 36 4.4. Business Sector. 36 4.4.1. Total Financing of Business Sector. 36 4.4.2. Changes in External Funds of Business Sector. 37 4.4.2.1. Changes in Sources of External Funds. 37 4.4.2.2. Changes in Uses of External Funds. 38 4.423.In creasing Dependence on External Funds. 38 4.5. Government Sector. 39 4.6. Foreign Sector. 42 4.6.1. Compiling the Flow of Funds Statement. 42 4.6.1.1 .Sources of Funds. 43 4.6.1.2 .Uses of Funds. 43 4.6.2. Absorbing Foreign Funds. 45 5. Functioning of Interest Rates, Government, and Financial System. 47 5.1. Interest Rates. 47 5.1.1. Determination of Interest Rates. 47 5.1.2. Functions of Interest Rates. 47 5.13. Influence on Supply of Funds in China. 48 5.1.3.1 .Relationship between Interest Rates and Saving. 48 5.1.3.2. The Interest-Rate-Independent Supply of Funds. 49 5.1.3.3. Explanationsfbr This Phenomena. 52 5.1.4. Influence on Investment. 52 5.1.5. Absence of Allocating Role 54 5.2. Government. 54 5.2.1. The Pre-Reform Direct Allocation of Funds. 54 5.2.2. Controlling Bank Credit. 55 5.2.3. Local Intervention. 57 5.3. Financial System. 59 5.3.1. The Pre-Reform Functioning. 59 5.3.2. Institutional Structure 61 5.3.3. The Financial Deepening. 63 6. Existing Problem and Recommendation. 66 6.1. The Incompatibility. 66 6.1.1. Form and Structure of Savings. 66 6.1.2. From Compatible to Incompatible. 67 6.2 , Completing Fund Formation System. 70 6.2.1. Diversifying Saving Forms. 70 6.2.2. Floating Interest Rates. 71 7. Conclusions. 73 8. Bibliography. 76