Critical #1

COTABATO FOUNDATION COLLEGE
OF SCIENCE AND TECHNOLOGY

Graduate Main Campus
Doroluman, Arakan, Cotabato
Master of Arts in Education
Major in Educational Administration
AN EMPIRICAL STUDY ABOUT THE IMPACT OF CHINA’S FINANCIAL

INDUSTRY DEVELOPMENT ON ECONOMIC GROWTH
(Critique paper)
SUBMITTED BY: EGIELYN R. DACUTAN

SUBMITTED TO: DR. HARRIS SINOLINDING
AN EMPIRICAL STUDY ABOUT THE IMPACT OF CHINA’S FINANCIAL
INDUSTRY DEVELOPMENT ON ECONOMIC GROWTH
CRITICAL ANALYSIS #1
INTRODUCTION :
The development of the financial industry in China has played a significant role in
the country's economic growth and progress. Studies have shown that financial
development has a positive impact on economic growth, as it provides the
necessary funds and support for the real economy. The relationship between
financial development and economic growth is mutually reinforcing, with both sectors
influencing and supporting each other. The development of the financial industry is
crucial for China's economic stability, social stability, and the achievement of its
development goals.
ANALYSIS:
The multivariate linear regression analysis in this study aims to examine the
relationship between the development of China's financial industry and its impact on
economic growth. The analysis includes the selection of financial development
indicators and the establishment of regression models.
The study finds that the development of China's financial industry, as

measured by various indicators such as monetary and quasi-currency, gold reserve,
foreign exchange reserve, the number of domestic listed companies, total stock
issuance capital, total stock market value, and stock turnover, has a significant impact
on economic growth.
The results of the multiple linear regression and principal component

analysis provide insights into the relationship between the development of China's
financial industry and its impact on economic growth. Here is a critical analysis of the
findings:
Multiple Linear Regression Analysis: The multiple linear regression model

initially constructed shows a high goodness of fit (R2 = 0.999), indicating a strong
explanatory power of the model. However, there are some issues with the model. The
variables x6 and x7 failed to pass the t-test and have negative correlations with GDP,
which raises questions about their economic significance. Moreover, the presence of
serious multicollinearity in the model suggests that some variables may be highly
correlated, potentially affecting the interpretation of their coefficients.
Principal Component Analysis: The principal component analysis is

conducted to address the issue of multicollinearity and obtain a more reasonable
regression model. The analysis identifies two principal components, which explain a
cumulative contribution rate of 95.514%. The principal component regression model
shows a high goodness of fit (R2 = 0.99) and significant t-test values for the principal
components (F1 and F2). This suggests that the model has a strong explanatory
power and is suitable for predicting the impact of the financial industry indicators on
GDP.
Interpretation of Coefficients: The coefficients obtained from the principal

component regression model indicate the impact of each standardized indicator on
GDP. It is found that the number of domestic listed companies (A and B shares) has
the greatest positive impact on GDP. As the number of listed companies increases,
their earnings and contribution to GDP also grow. Money, quasi-currency, and gold
reserve also contribute significantly to GDP, as they play essential roles in stimulating
economic growth. The total stock price is another important factor positively affecting
GDP, as it reflects the overall performance of the stock market and influences investor
sentiment and economic activity.
Limitations and Considerations: While the results provide insights into the
relationship between financial industry indicators and GDP, there are several
limitations to consider. The study focuses on China's context, and the findings may
not be directly applicable to other countries. Additionally, the selection of indicators
and the model specification can be further refined to improve the accuracy and
robustness of the analysis. It is also important to consider other factors and variables
that may influence both financial industry development and economic growth, such as
government policies, external shocks, and technological advancements.
CONCLUSIONS:
In conclusion, the results suggest that the number of domestic listed

companies, money, quasi-currency, gold reserve, and total stock price have
significant impacts on China's economic growth. However, further research and
analysis are needed to validate and refine these findings, considering the limitations
and complexities of the relationship between the financial industry and economic
progress.
1) Economic growth is inseparable from the growth of money supply.

2) The number of listed companies has a significant impact on improving a country’s
economic level.
3) Stock and its derivatives markets have a great impact on the economic
environment.
RECOMMENDATIONS:
1. Enhance the regulatory framework: Strengthen the regulatory framework

for the financial industry to ensure responsible and sustainable development.
This includes implementing robust oversight mechanisms, enforcing
regulations, and promoting transparency and accountability within the
industry.
2. Promote financial literacy: Implement programs and initiatives to improve
financial literacy among the general population. This will empower individuals
to make informed financial decisions and better understand the risks and
benefits associated with financial products and services.
3. Foster financial inclusion: Take steps to ensure that all segments of society
have access to affordable and appropriate financial services. This includes
promoting the use of digital financial services, expanding financial education
programs, and addressing barriers to financial inclusion, such as limited
access to banking services in rural areas.
4. Encourage responsible lending practices: Promote responsible lending

practices by financial institutions to prevent excessive debt burdens and
protect consumers. This can be achieved through the implementation of
regulations and guidelines that promote responsible lending, including proper
assessment of borrowers' creditworthiness and transparent disclosure of loan
terms and conditions.
5. Strengthen risk management: Enhance risk management practices within

the financial industry to mitigate potential risks and ensure financial stability.
This includes conducting regular risk assessments, implementing robust risk
management frameworks, and promoting a culture of risk awareness and
accountability within financial institutions.
THINGS TO AVOID:
1. Excessive risk-taking: Financial institutions should avoid excessive risk-

taking behavior that could lead to financial instability and systemic risks. This
includes avoiding speculative investments, inappropriate lending practices,
and overreliance on short-term funding sources.
2. Lack of transparency: Financial institutions should strive for transparency in
their operations, including clear and accurate disclosure of financial
information and adherence to reporting standards. Lack of transparency can
erode trust and confidence in the financial industry.
3. Predatory practices: Financial institutions should avoid engaging in

predatory practices that exploit vulnerable individuals or businesses. This
includes practices such as predatory lending, excessive fees, and misleading
marketing tactics.
4. Weak corporate governance: Financial institutions should ensure strong
corporate governance practices to promote ethical behavior, accountability,
and effective risk management. Weak corporate governance can lead to
mismanagement, conflicts of interest, and poor decision-making.
5. Inadequate customer protection: Financial institutions should prioritize

customer protection and ensure that appropriate measures are in place to
safeguard the interests of consumers. This includes fair and transparent
pricing, clear disclosure of terms and conditions, and effective mechanisms
for addressing customer complaints and disputes.
By following these recommendations and avoiding the identified pitfalls, the financial
industry can contribute to sustainable economic growth, financial stability, and
improved financial well-being for individuals and businesses.
References:
[1] https://www.scirp.org/journal/paperinformation?paperid=96746
[2] Liu, X.R. (2002) Empirical Analysis of the Relationship between Regional
Financial Development and Economic Growth in China. Journal of Southwest
University for Nationalities (Philosophy and Social Sci-ences Edition), 12, 109-
112.
[3] Han, T.C. (2003) Endogenous Mechanism of Financial Development and
Economic Growth. Journal of Tsinghua University (Philosophy and Social
Sciences Edition), S1, 80-85. https://doi.org/10.20955/r.85.81-106
[4] Tan, R.Y. (2004) Bank Generation Model with Intermediary Cost: Also on the
Significance of Capital Investment. Financial Research, 6, 57-68.
[5] Cheng, C.L. and Gong, X.S. (2013) Measuring the Coordination Level between
Financial Development and Economic Development: Taking Xinjiang Production
and Construction Corps as an Example. Business Age, 33, 131-133.

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COTABATO FOUNDATION COLLEGE

OF SCIENCE AND TECHNOLOGY

AN EMPIRICAL STUDY ABOUT THE IMPACT OF CHINA’S FINANCIAL

SUBMITTED BY: EGIELYN R. DACUTAN

The study finds that the development of China's financial industry, as

The results of the multiple linear regression and principal component

Multiple Linear Regression Analysis: The multiple linear regression model

Principal Component Analysis: The principal component analysis is

Interpretation of Coefficients: The coefficients obtained from the principal

In conclusion, the results suggest that the number of domestic listed

1) Economic growth is inseparable from the growth of money supply.

1. Enhance the regulatory framework: Strengthen the regulatory framework

4. Encourage responsible lending practices: Promote responsible lending

5. Strengthen risk management: Enhance risk management practices within

1. Excessive risk-taking: Financial institutions should avoid excessive risk-

3. Predatory practices: Financial institutions should avoid engaging in

5. Inadequate customer protection: Financial institutions should prioritize

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