Interconnected gears representing industries, with the financial industry as a central gear.

Decoding China's Financial Industry: How Relevant Is It?

Elliot Brynn in Business & Economy December 2025 • 4 min read.

"A Deep Dive into the Input-Output Relevancy Between Finance and Major Industries in China's Economy"

Finance is the backbone of any modern economy, playing a crucial role in allocating resources and managing economic activity. Understanding the dynamics of the financial industry and its interconnectedness with other sectors is vital for gauging economic stability and growth potential.

This article examines the relevancy of China's financial industry by analyzing its relationships with primary (agriculture), secondary (manufacturing), and tertiary (services) industries. Using input-output tables from 2007 and 2010, we'll dissect the direct and indirect connections, spread effects, and overall influence of finance on these major sectors.

Our goal is to provide a clear picture of the financial industry's current role in China's economy, identify areas for improvement, and offer insights for fostering a more robust and balanced economic future.

Unpacking the Input-Output Model: How Industries Link Together

Interconnected gears representing industries, with the financial industry as a central gear.

The foundation of our analysis is the input-output model, a tool used to understand the relationships between different sectors of an economy. It allows us to trace how industries rely on each other for inputs (resources, services) and how their outputs contribute to other sectors.

Specifically, we examine several key indicators:

Direct Consumption Coefficient: Measures the direct reliance of one industry on another.
Intermediate Input Coefficient: Shows the total inputs required by an industry from all other sectors.
Influence Coefficient: Indicates how much one industry's output impacts other industries.
Response Coefficient: Reflects how strongly an industry responds to demands from other sectors.
Intermediate Input & Demand Rates: Reflects the proportion of intermediate inputs and reflects the degree of the products from a certain industry demanded by the other industries.

By analyzing these coefficients, we gain a detailed understanding of the financial industry's position within the Chinese economy and its effect on key sectors.

Key Takeaways: Strengths, Weaknesses, and the Path Forward

Our analysis reveals that while China's financial industry has grown rapidly, its overall impact on the national economy is still developing. The financial sector demonstrates a strong internal connection and increasing influence on the secondary (manufacturing) sector, which shows that promoting function of the financial industry to the secondary industry has remarkable strengthened.

However, the financial industry's influence on other sectors, particularly the primary industry (agriculture), remains limited. The sector also relies heavily on the tertiary industry (services) for inputs, highlighting the need for a balanced development strategy.

To strengthen the financial industry's role and contribution, China should focus on: <ul><li>Restructuring the Financial Industry: Improve its internal structure to better support overall economic development.</li><li>Developing the Tertiary Industry: Prioritize the growth of the services sector to provide essential inputs for the financial industry.</li><li>Cultivating Financial Talent: Invest in education and training to build a skilled workforce capable of driving innovation and growth in the financial sector.</li></ul>

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.5539/ijef.v8n7p294, Alternate LINK

Title: Analysis On The Input-Output Relevancy Between China’S Financial Industry And Three Major Industries

Subject: Energy Engineering and Power Technology

Journal: International Journal of Economics and Finance

Publisher: Canadian Center of Science and Education

Authors: Jia-Li Cai

Published: 2016-06-23

Everything You Need To Know

How does the input-output model help in understanding the relationships between different sectors in China's economy?

The input-output model helps us understand how different parts of the economy connect. It uses indicators like the Direct Consumption Coefficient (how much one industry relies on another), Intermediate Input Coefficient (total inputs an industry needs), Influence Coefficient (how much one industry affects others), and Response Coefficient (how much an industry reacts to demands). By looking at these, we can see how the financial industry fits into China's economy and how it affects key areas.

What does the Direct Consumption Coefficient reveal about the financial industry's connection to other sectors?

The Direct Consumption Coefficient measures the direct reliance of one industry on another. For example, it would measure how much the manufacturing sector relies directly on the financial industry for services like loans or investments. A higher coefficient means a stronger direct connection.

How does the Influence Coefficient demonstrate the financial industry's impact on China's broader economy?

The Influence Coefficient shows how much one industry's output affects other industries. If the financial industry has a high Influence Coefficient, it means that changes in the financial industry significantly impact the performance of other sectors like manufacturing, services, and agriculture. This reflects the financial industry's power to stimulate or hinder growth in other areas.

What are the key strengths and weaknesses of China's financial industry in relation to the national economy?

While China's financial industry has grown quickly, its overall influence on the national economy is still evolving. There's a strong internal connection within the financial sector itself and a growing influence on the secondary (manufacturing) sector. This suggests that the financial industry is becoming more important for manufacturers, but there's still room to improve its impact on primary (agriculture) and tertiary (services) industries. Focusing on these areas could lead to a more balanced economy.

Besides the secondary industry, what other areas need focus to balance China's economic future through financial influence?

The analysis specifically highlighted the relationship between the financial industry and the secondary (manufacturing) sector, noting a strengthened connection. However, the impact on primary (agriculture) and tertiary (services) industries was not as pronounced. Further investigation is needed to understand why the financial industry's influence varies across sectors and to identify strategies for strengthening its role in supporting all areas of China's economy.