Abstract: Based on the ownership structures of the financial institutions, this paper constructs the two-level indexes that can accurately reflect financial decentralization at the provincial level, i.e., the decentralization of the central government to the local governments (Financial Decentralization I), and the decentralization of local governments to the market (Financial Decentralization II), thus the problem of lacking accurate measure index for financial decentralization is recovered. Through multi-dimensional comparison of indicators and analysis, it is found that as Financial Decentralization I increases year-by-year, Financial Decentralization II will have significant regional differences: the highest is in the eastern region, while the central and western regions are relatively lower. Although the financial privatization is gradually deepening, a mass of local financial resources is still controlled in the hands of local governments. The local state-owned enterprises (SOEs) are the main intermediary in the control of financial resources by the local governments. The findings of the mediating effect test indicate that the local governments promote industrial upgrading through SOEs and thereby affect the financial decentralization, which is the major channel leading to the regional differences of financial decentralization, especially in the regions with relatively backward economies. The local governments should give full play to the advantages of local SOEs, appropriately guide industrial upgrading, and optimize the allocation of financial resources, so as to achieve rapid economic growth and financial stability.

Key words: financial decentralization, regional difference, SOEs, industrial upgrading