The operation of market economy faces not only the problem of “market dysfunction" but also the problem of “market insufficiency".

Western economics takes market externality as an important field of study and regards it as one of the basic phenomena of market defect.

The paper makes a systematic analysis of the phenomena and causes of market defect and government ineffectiveness,and put forward an ideal method to solve the two problems.

The market defect does exist in the operational process.

From the perspectives of market,market mechanism and market system,this paper summarized the development constraints of Guangxi Beibu Gulf Economic Zone venture capital industry,and held that market deficiency was the root of the lag development,and the imperfect market system was the external inducement.

Based on analyzing the motive mechanism of financial institutions lending to the small-and-medium enterprises (SMEs), and the market deficiency, the author suggests that macro-regulations should be focus on improving market efficiency.

This paper analyzes government failure from a practical angle: on one hand, market failure demands government s interference, because of many reasons, market defects have been exaggerated, which leads to too much interference from the government; on the o.