Research on the Impacts of Green Finance towards the High-Quality Development of China’s Economy—Mechanisms and Empirical Analysis

This paper firstly theoretically analyzes the specific mechanism of Green Finance in promoting the high-quality development of China’s economy through three channels: optimizing the industrial structure, improving the ecological environment and supporting the development of the new economy. On this basis, by choosing relevant data of China from 2004 to 2018 to construct the evaluation indicators system of economy quality and synthesiz-ing the high-quality development index of China’s economy, then this paper empirically analyzes the impacts of Green Finance on High-Quality Development of China’s Economy by using VAR model. It is found that Green Finance has a significant positive correlation with the optimization of China’s Economy Quality Index. With the increase of green financial investment, China’s industrial structure tends to be rationalized and advanced, and the ecological environment is improved, the new driving force of economic development is constantly strengthened, so as to promote the development of China’s economy quality. Finally, according to the research results, the paper puts forward some policy recommendations.


Introduction
High-Quality Development of Economy was first proposed by the 19th National How to cite this paper: Yang, G., Li, Y. R., & Jiang, X. Y. (2020). Research on the Impacts of Green Finance towards the High-Quality Development of China's Economy-Mechanisms and Empirical Analysis.
Theoretical Economics Letters, 10, 1338-1357. https://doi.org/10. 4236/tel.2020.106082 Theoretical Economics Letters Congress of the Communist Party of China in 2017, indicating that China's economy has shifted from the stage of high-speed growth to the stage of high-quality development. Since the reform and opening-up, China's economic development has made great achievements. The total economic volume has leapt to the second place in the world, and the average annual growth rate of GDP has always maintained above 8%. In 2019, the per capita GDP has exceeded 10,000 US dollars. However, the secondary industry with high pollution and high energy consumption such as coal and steel has been in a dominant position in the industrial layout for many years, and the extensive growth-oriented development mode has led to increasing pressure on resources, ecology and the environment. The problems such as imbalance of supply and demand, the transformation of industrial structure need to be solved urgently. It is necessary to shift from quantitative development to high-quality development, so as to promote the sustainable development of economy and society. The report of the 18th Na- High-quality Development of Economy is a new development concept of innovation, coordination, greening, opening and sharing put forward by Chinese government in 2017. The contribution of Green Finance to High-quality Development of Economy is mainly reflected in the three aspects of innovation, coordination and greening. Therefore, we will review the green finance from the following three perspectives: economic growth, industrial structure adjustment and optimization, and green development.
Some scholars believe that the development of green finance has a significant role in promoting economic growth. Markandya et al. (2015) used Dynamic CGE model to empirically study the impacts of green financial development on G. Yang et al. DOI: 10.4236/tel.2020.106082 1340 Theoretical Economics Letters economic growth and emission reduction in developing and developed countries. Their research found that the green climate fund with carbon tax can achieve the dual goals of economic growth and emission reduction. Anderson (2016) believes that green finance is the embodiment of the awareness of resource and environmental protection in the financial industry, which contributes to the green transformation of enterprises and promotes the green development of the overall economy. According to Eric Cowan (1999), green finance is the product of financial industry and environmental protection economy. It is produced to coordinate the common development of the two. Its function is to apply the funds gathered in the financial market to the development of envi-  (2019) find that there is an interaction among economic growth, environmental quality and green finance. Green finance has a positive effect on environmental quality, but the effect is low. The relationship between green finance and economic growth basically conforms to EKC hypothesis.
Green finance promotes economic growth by promoting the optimization of industrial structure. Based on the inter provincial data of six provinces in Cen-  short and medium term, but it has no significant effect in the long term. Ma Limei, Zhang Xiao (2014) empirically studies the spatial characteristics of haze pollution in China by building a spatial lag model and a spatial error model. The study finds that there is a positive correlation between domestic haze problems and space, and the pollution level is positively correlated with per capita GDP and coal consumption. Green finance can promote the development of clean energy industry, which is conducive to energy conservation and emission reduction. Shao, S. et al. (2016Shao, S. et al. ( , 2017  the definition of high-quality development of economy is not completely consistent with the statement of Chinese government, and then there may be a lack of targeted basis for policy-making. Therefore, this paper will explore the construction of high-quality development index according to the definition of Chinese government, so as to provide some theoretical and empirical basis for the future green finance policies.

The Channels and Function Mechanisms of Green Finance Promoting High Quality Development of Economy
Finance is the blood of economy, and a developed and perfect financial system is an important basis for economic prosperity and stability. Green finance has the important characteristics and functions of finance to promote economy growth, and it also has strong policy nature. By tightening loans scale, raising the interest rate of loans can reduce the output of Three High Industries, and at the same time, it can promoting Green Industries by supporting more loans and lowering down the interests. So green finance can not only reduce the environmental pollution, but also optimize the industrial structure to promote the sustainable development of economy. We can see that Green Finance therefore contributes to High-Quality Economic Development mainly through three channels, including optimizing industrial structure, improving ecological environment and supporting the development of the new economy. The specific mechanism of each channel is as following (see Figure 1). new loans in Black Industry, limit the total capital scale, increase the loan interest rate, and increase their financial costs. As a result, the scale expansion of these enterprises has been seriously hindered and their internal structure has been optimized, For Green Industries, we should increase the scale of green credit, expand its total capital, reduce its loan interest rate, and reduce its financial costs, so as to promote these industries to expand their production capacity.

1) Optimize industrial
Through the implementation of differentiated credit policy for black and green

Selection, Construction and Description of Variables
In order to accurately describe the impacts of green finance on economic quality, 1) Innovation force. It includes innovation input and innovation output. Innovation input includes R&D investment and personnel input. Innovation output includes per capita patent ownership, technology market turnover and high-tech industry output, with a total of 6 basic indicators.
2) Coordinated development. This paper describes the coordinated development of China's economy from five evaluation items: urban-rural coordination, industrial structure optimization, urbanization level, investment and consumption structure, market mechanism. There are 17 basic indicators in total, such as urban and rural income, industrial structure, urbanization, urban and rural consumption, and Theil index.
3) Green ecology. This paper describes the eco-environmental pressure from four aspects: resource using efficiency, pollution emission, energy conservation and environmental protection, environmental governance, including 11 basic indicators, such as energy consumption per unit GDP, solid waste discharge per unit GDP, waste gas emission per unit GDP, wastewater discharge per unit GDP, and forest coverage rate.

Basic Test of Variables Sequences
Each sequence passed ADF unit root test after the first-order difference. The main test results are shown in Table 2.

The Establishment of Vector Autoregressive Model (VAR)
Vector Autoregressive model is often used to predict the interconnected time series system and analyze the dynamic influence of random disturbance on variable system. VAR method constructs the model by taking every endogenous variable as a function of the lag value of all endogenous variables in the system. The mathematical form of VAR (P) model is shown in the following Equation (1): Here Y t is a k-dimensional endogenous variable, and X t is a d-dimensional exogenous variable. 1 , , p A A  and B are the coefficient matrix to be estimated. ε t is a disturbance vector, which can be correlated with each other in the same period, but not with its own lag value, nor with the variables on the right side of the equation. In this article, EQI, LNGF, FDR are jointly determined by a three-variable VAR model, and the constant is the only exogenous variable. The lag period of the model is determined according to the AIC and SC information criteria. After many tests, we find the AIC and SC information criteria are the smallest when the lag period is 2. Therefore, the estimated results are as in the following table. For the second order VAR (2) model with endogenous variable lag, see Equation (2)

The Test of VAR Model
Since VAR model requires that the variable sequences are stable or have co-integration relationship, so the unit root test is carried out first. It can be seen from the test in Figure 2 that the 6 unit roots are all in the circle, which shows that the VAR system is stable. Theoretical Economics Letters There is a cointegration relationship between the non-agricultural employment rate and every variable at the significance level of 5%, indicating that there is a long-term equilibrium relationship between them; Granger causality test shows that each variable is the Granger cause of non-agricultural employment when it lags behind the second order; the result of VAR model shows that the adjusted R 2 is 0.9240, which means that the total fitting degree of the model is very good. The standard deviation SE is almost zero, and there is no problem of self-correlation by DW test, and the F statistics are large enough, so we can judge that the VAR model is stable and can pass the tests, and the main test results are shown in Table 3 and Table 4.

Analysis of Empirical Results
In this article, we use Analytic method to calculate the standard error of impulse response, and use the inverse of Cholesky factor of residual covariance matrix to orthogonalize the impulse. Figure 3, Figure 4 show the impulse responses of EQI to the changes of LNGF and FDR. Figure 5, Figure 6 are the results of variance decomposition, which show the contribution rates of LNGF and FDR to urbanization. The term of impact is set as 10 periods because the effects of GF need time to fully display, and 10 periods are long enough and comparatively reasonable.

Impulse Response Function
It can be seen from Figure 3 that after giving GF a positive impact in the current period, EQI will show a long-term stable growth trend. This effect begins to appear in the first period, and continues to increase until the eighth period reaches the maximum value of 5.4406, indicating that GF has great and far-reaching impacts on EQI, which is consistent with the above theoretical analysis. With the gradual promotion of China's green development strategy, financial institutions continue to increase the support of green finance, the proportion of green credit increases, and the proportion of black loans decreases, from the theoretical and empirical analysis results, we can see that the impacts on the upgrading of industrial structure and green economic development are very obvious, which effectively promote the high-quality development of China's economy. Under the circumstances that climate changes have more and more significant impacts on China's as well as the global economy, and international trade frictions are increasingly extending to China's high-end technology bottleneck, we should continue to emphasize and encourage green finance to support economic structure transformation and sustainable development.
It can be seen from Figure 4 that after a positive impact on FDR in the current period, EQI will immediately adjust, and then form a slow but sustained growing trend. This growth begins to appear after the bottom of the second period, and continues to increase until it reaches the maximum value of 1.0050 in the eighth period. Although the marginal influence is relatively small comparing with that of GF, due to the huge base of M2 and GDP in China, the actual absolute impacts of FDR on EQI are larger and lasting. However, at present, China's FDR has exceeded 200%, far exceeding the average level of the general developing and developed countries, which can be said to have faced a great growth bottleneck. FDR has experienced a slight decline for three consecutive years since 2005, which can explain the initial fluctuation of its impact on EQI to a certain extent; during the subprime mortgage crisis, the Chinese government began to increase the currency issuance significantly in order to maintain stable economic growth, and FDR increased rapidly. As financial institutions have begun to emphasize the impacts of credit instruments on the quality of economic develop- Theoretical Economics Letters ment, so they have consciously adjusted and optimized the structure of financial support, and gradually turned to use green finance to support strategic emerging industries. Therefore, the influence of FDR on EQI is gradually increasing.
However, compared with GF which directly affects EQI, the marginal influence is not big enough.

Variance Decomposition
The results of variance decomposition are shown in Figure 5, Figure 6. Comparing Figure 5, Figure 6, we can see that the contribution rate of GF to EQI is far greater than that of FDR.
As can be seen from Figure 5, the contribution rate of GF is rising continuously. It accelerates before the third period, and then slows down from the fourth period, but still maintained a strong upward trend, reaching the highest point of 50.5118 in the 10th period. The impact of GF is relatively more direct and sufficient. It can not only affect the loan amount and interest rate level of energy-saving and environmental protection enterprises, but also indirectly affect the public's cognition to gradually improve the quality of economic development through demonstration effect. Therefore, its direct and indirect effects are very significant. The contribution rate of Financial Deepening indicators is continuously rising, but its value always remains underneath 1.5, so the growth is very weak, and its marginal contribution rate is very small. FDR reflects the currency issuance ratio, which is mainly reflected in the impacts on all aspects, levels and links of the whole society, including both positive and negative impacts on Green Industry and Black Industry. It does not have the ability to accurately implement targeted support, so the marginal contribution to the improvement of economy quality is not obvious.

Conclusion and Suggestion
Research conclusions: theoretical analysis shows that green finance promotes high-quality development of economy mainly through three channels, including optimizing industrial structure, improving ecological environment and supporting new economic development, and each channel has its own specific me-    2) Enhance the green production awareness of enterprises. Enterprises should establish the concept of green investment, improve the awareness of green development, carry out green investment projects, strengthen technological trans- Secondly, we should increase the scale of green finance so that to promote the optimization and upgrading of China's industrial structure.
In order to play a positive role in promoting green development, resolving excess production capacity and building ecological civilization, China should increase the supply of green credit on the premise of controlling financial risk, and keep the growth rate of green credit higher than the average level of all bank loans. It is necessary to promote the business philosophy, development path, resource allocation and transformation focus of commercial banks to further incline to green finance. In terms of institution establishment, green credit departments or even green sub-branches should be set up to provide credit support for pollution prevention and control, resource conservation and recycling, clean transportation, clean energy, ecological protection. In terms of institution and management process, the commercial banks should give full support to green finance in development planning, organizational structure, risk control, assessment management and resource allocation, and give priority to the important national energy conservation and emission reduction projects, key pollution source control projects, technologies listed in China's key energy conservation promotion catalogue, and companies of energy-saving and emission reduction with innovative technology and good market demand.
Thirdly, we should use green financial policies to develop New Infrastructure and boost rationalization of industrial structure. tide over short-term difficulties and support long-term prosperity, it can also carry out moderately advanced new infrastructure construction through market mechanism constraints and incentives, form appropriate supply and production capacity, drive the new economy with more than 10 trillion output value, and lay a solid foundation for seizing the commanding heights of the new generation of global information technology. Through targeted green financial incentives, China can promote the practical application of new green technologies and products, and promote the development of green intelligence in new infrastructure construction from the aspects of facility construction and equipment selection, so that to promote the rationalization of industrial structure.
Fourthly, governments should introduce more encouraging and supporting policies to fully mobilize the enthusiasm of banks to carry out green finance.
At present, China's environmental protection industries related supporting policies and incentive mechanisms need to be further improved; some environmental protection enterprises have limited capital strength, single financing channels, and insufficient collateral, which increase the risk of green credit; many environmental protection projects have high management costs, long project duration and are in a state of loss. These problems make the environmental protection industry show the signs of high investment, high risk but low output, and at the same time, it also reduces the motivation of banks to continue to carry out green credit. Therefore, while calling on banks to carry out green credit, the government and other relevant parties should also bear corresponding responsibilities. Government should introduce more encouragement and support policies for green credit related businesses, fully mobilize the enthusiasm of the banking industry, and establish a long-term mechanism for the development of green credit business. It can increase investment in government funds, incorporating green credit into policy-oriented loan, giving loan discount, direct subsidy for green credit, etc., so as to reduce the cost of green credit of banks and improve the return rate of green credit; due to the large capital requirement, the long construction period and high risk of some environmental protection projects, it is difficult for banks to use green credit alone to meet the demand of enterprises, so the government should help to broaden financial channels when necessary, so that to reduce the financing risk of green credit of banks. By these means, we can fully mobilize the enthusiasm of the banking industry to carry out green credit, boost the continuous adjustment and optimization of China's industrial structure, and promote the sustainable green development of economy.