The early theory of financial repression emphasized that the coordination problem in the economy should be solved through the market-based system, and monetary and financial policies should focus on reducing government intervention in the financial sector and giving play to the role of market mechanism in determining the equilibrium interest rate, exchange rate and allocating resources. The government's function is only to supply public goods and maintain a competitive market environment, and should not directly interfere with financial development, otherwise financial repression will inevitably distort the price mechanism and reduce the efficiency of resource allocation.

The theory of financial repression is similar to the theory of "the state promotes development". The essence of this theory is the government's selective intervention in financial development. Through a series of economic and financial policies, such as deposit supervision, market access restriction and stable macro-policies, the government has enabled the banking industry to obtain rent due to the "franchise value". In policy, the theory of financial repression emphasizes the important role of government intervention, and holds that selective government intervention helps rather than hinders financial development.

Comparing the two viewpoints, the debate only lies in the scope of the market and the government. Both theories regard the market and the government as alternative organizations, but the financial repression theory holds that the government can only replace a small part of the market, while the financial repression theory emphasizes that the government can replace the market to a great extent. Because the theory of financial repression accords with the reality of China government's financial intervention and the inherent tradition of financial repression in China's history, it has always been respected by our country.

Although the financial market is efficient in mobilizing and distributing funds and dispersing risks, the operation of the financial system has its particularity, and there are various forms of market failure and instability in the financial market. Therefore, it is necessary for the government to intervene in financial development. Let the financial market compete freely, not only will it not promote the development of the financial market, but it will make the financial market more chaotic and turbulent. Due to the development of understanding the role of government, in the process of financial liberalization, many countries have implemented transitional policies of financial constraints to eliminate financial repression.

However, in the practice of financial repression policy, the distortion of government regulation behavior is widespread, and government behavior often goes in another direction. As the owner of financial institutions, the government hopes to generate huge profits by controlling financial resources, and on the other hand, as the regulator of the whole macro-economy, it also hopes that the economy can develop rapidly and healthily, so the contradiction of dual roles is inevitable. Especially in the case of imperfect market mechanism, financial constraints often turn into financial intervention, and strict financial constraints are not much different from the behavior characteristics of the government in financial suppression policies.

In the process of economic transition, the financial repression policy has led to the monopoly of state-owned finance, and the role of financial development has weakened, while the role of strong government in growth is obvious. In order to achieve the established economic goals and obtain huge monetization benefits, it is a natural choice for the government to control the financial system with a monopoly position. Therefore, in the early stage of reform, on the one hand, the government actively promoted the expansion of financial property rights, which was manifested in a large number of financial institutions; On the other hand, the government can effectively control financial arrangements and activities and obtain income. However, with the improvement of marketization, the regression degree of the nature of the money market has improved, and the gap between income and cost has narrowed, which is the fundamental logic of the substitution between government intervention and market freedom.

There are inevitably some problems in government behavior, such as self-interest, arbitrariness, opportunism and incomplete ability. Government behavior is often inappropriate and needs to be regulated reasonably. Therefore, how to give full play to the role of the government in economic development and avoid excessive government intervention in the economy regardless of its information capacity is a problem that needs careful choice.

Second, the characteristics and role of government behavior in China's financial development

In developing countries, governments often use the financial system to achieve development goals. Macroeconomic policy objectively requires the state to monopolize and fully control the financial industry in order to maximize the allocation of social resources. This kind of financial system arrangement mainly puts the amount of financial resources that the government can control in the first place, and puts the efficiency and safety of the financial system in a secondary position. China's financial development is dominated by the government, which controls the financial system and affects the allocation of financial resources. This has become the main content of the China government's intervention in financial development, and it has also led to many unsatisfactory aspects in the development of China's financial system:

First, the high "transaction cost" in China market mainly exists in the field of financial services. In China, the transaction cost is very high, which is mainly reflected in the services of government, accounting, law, banks and capital markets. In fact, the high financial growth in China is caused by the state-owned economic sector relying more on borrowing funds from the banking sector, which is not the real financial development, but to a great extent the result of the government's distortion of financial control relations. This will inevitably lead to a decline in the efficiency of social capital allocation and an increase in the occupation of invalid capital, which in turn will lead to an increase in non-performing assets in the financial system and an increase in economic operating costs.

Second, China's financial development is inefficient. The arrangement of state-owned financial system is a remarkable feature of China's financial development, and the degree of marketization of financial sector is far lower than that of all other non-financial sectors: in the process of deepening reform, the role of planning in all other sectors is getting smaller and smaller, but the government's control over state-owned financial institutions has been strengthening. The government's control of loan interest rate and quantity quota encourages enterprises to seek rent and stimulates enterprises to pursue extended development strategy. At the same time, the government's direct involvement in bank operations also makes the budget constraints of banks and enterprises unable to be completely hardened.

Third, financial development has not given full play to the role of financial factors in economic growth, and financial development is seriously out of touch with economic development. Zhou Ye An et al. (2007) found through research that the financial development led by government behavior actually hindered economic growth because of the serious intervention of the China government in the financial market. The emergence of this abnormal relationship shows that China has not achieved the most effective growth path during the transition period.

The deep-seated reason for this situation still lies in the slow evolution of the financial system and the government demand for financial development in China, that is, the quantitative expansion of financial development is not really based on the needs of economic development, but on the needs of government interests and reform cost compensation. The inherent defects of the state-owned financial system in resource allocation and risk management also determine that the faster the financial development in China, the more serious the distortion of resource allocation, the more serious the financial resource constraints faced by the more efficient departments in the national economy, and the more prominent the problem of financial risk accumulation. In the transitional economy led by China government, the government not only strictly controls the financial market, but also directly intervenes in the allocation of financial resources through state-owned financial institutions. Even if this intervention protects the market, it may still crowd out private investment and weaken private incentives, thus bringing side effects to economic growth.

In addition, in China, the effectiveness and rationality of government financial intervention are obviously insufficient, especially in promoting the construction of national pillar industries and maintaining the stability of the banking system. As the central bank, the People's Bank of China lacks the necessary stability and independence, and the formulation and implementation of policies are easily influenced by various political factors.

At present, with the development of economy and the gradual establishment of market mechanism, the government's information ability has been relatively weakened. This determines that the government's behavior orientation in financial deepening should be adjusted with the evolution of financial deepening, gradually giving way to the market and relaxing the scope and intensity of intervention.

However, there is a dangerous tendency in China at present, that is, the government still tries to strengthen financial regulation through administrative means, rather than deregulating and giving full play to its market advantage, which hinders the development of China's financial industry.

Third, regulating the government's financial intervention should start with institutional arrangements.

The role of western financial development theory on institutional factors is too slight, and the same problem also appears in China's similar research. In fact, the treatment of the role of government in financial development theory is a non-institutional point of view, but if the government is not regarded as an institutional arrangement, it will be difficult to truly grasp the essence of the role of government, and it will not be able to provide effective help for the formulation of economic policies. From the perspective of system, financial development is the process of financial system evolution. With the change of macro and micro economic environment, it is necessary to reform the financial system based on financial constraints, weaken the intensity and breadth of financial constraints, and make the restrictive financial system develop into a more free, open and competitive financial system.

The new institutional school believes that the government needs to intervene and intervene to a certain extent under the imperfect financial market, but the success of government intervention depends on well-designed institutional arrangements. The new institutional school thinks that the financial market is a complex social system, which will produce different effects under the action of different governments. If a reasonable and effective institutional arrangement is established in the market through the role of the government, financial repression may not necessarily hinder economic development. Similarly, if the government lacks scientific intervention and establishes an effective supervision system, financial liberalization may not bring about the improvement of financial market efficiency, which also means the failure of the government's role.

The implementation of the relational financing system under the direct intervention of the government in China will bring unproductive waste of resources and lead to an increase in bank bad debts. Financial development should not only be a process of accumulating and enriching financial assets, but also a process of establishing a reasonable system and realizing the rational allocation of financial resources.

From the reality of our country, the role of the government in financial development should be to create conditions for the market mechanism to play its role, improve its own functions, innovate the financial system, and promote the overall progress of the financial market, rather than just relaxing financial restrictions. Only through institutional innovation can the government provide a good institutional environment for China's financial development and realize the sustained and effective development of the financial industry.