INTRODUCTION

The Asian financial crisis can be characterized by “double mismatch”, overreliance on banks, quick reversal of capital flow, as well as weak corporate governance and poor regulatory quality. In particular, short-term debt financing long-term project and excessive borrowing abroad demonstrate the systemic risk of an unbalanced financial structure. In contrast, a highly diversified, deep and liquid financial market would be less fragile and more efficient in capital allocation. Furthermore, a mature domestic longer-term debt security market could alleviate the effect of double mismatch, and bond valuation would also provide the correct signal for corporations and speculators to make their decisions, enhance efficiency in financial intermediations, and promote stable economic growth and development in the region.

The stability of Asia's economic growth is under threat now for three reasons: global imbalance and the depreciation of the U.S. dollar; U.S. interest rate hikes and the reversion of international capital flows; and finally, the surge in oil price. All these make the situation tough for Asian economies.

FINANCIAL STRUCTURE IN ASIAN COUNTRIES: A THEORETICAL AND INTERNATIONAL PERSPECTIVE

According to Goldsmith, the three stages of financial structure in economic development are: 1) the beginning stage, when the financial interrelation ratio is as low as 0.2 to 0.5, dominated by debt security and direct financing; 2) the take-off stage, when the financial interrelation ratio is still low and debt security prevails, loans extended by banks are predominant and governments begin to play a significant role; 3) the last stage, when the financial interrelation ratio is as high as 1 to 2, equity financing is growing at the same time and non-bank financial institutions are expanding their services.

The common trend of financial structure evolution is as follows: 1) accompanying economic growth, growth in the financial sector is faster than in other sectors, and the financial interrelation ratio will keep increasing until it reaches 1–1.5; 2) when the financial interrelation ratio comes to a plateau, the financial intermediate ratio can still keep on rising, and debt financing surpasses equity financing; 3) financial growth is often led by bank growth, but lending by banks will decrease.