Linking business and financial systems in the market economy: the case of China

The market economy is thought by some to have a life of its own, with a self-determining and autonomous dynamic that is sometimes thought of as constituting a living system. A deeper view comes from Whitley's mesoeconomic theory of business systems, where corporate hierarchy and the market establish relationships that when institutionalised generate a potential for generic rule structures. When the generic rules become enacted a market's financial system results. This paper will model the relationship between the business and financial systems. To do this, it will initially introduce a selected conceptual framework (autonomous agency theory) which takes the market to be a living system. The paper then explains Whitley's theory, and following this an examination of the Chinese financial system is made. This will illustrate the connection between the formal and informal financial servicing entities that can lubricate business processes, and indicate issues (seen as system pathologies) capable of delivering a new economic recession. Through agency, the relationship between the business and financial systems is explored, and issues like corruption are considered. Ultimately, we produce a model that clearly distinguishes between the concerns of macroeconomics and mesoeconomics.