A Study On Rural Finance In The Northeast Of China

Finance is the core of modern economy, with rural finance serving as a major mainstay of rural economic development, agricultural modernization and better livelihood for farmers. Facing with insufficient supply of rural finance, China, in 2006 for the first time, gave green light for industrial and private capital to set up new banks; in 2008, the proposal of establishing a rural financial system comprising commercial, policy-based and cooperative finances was made; in 2012, a differentiated regulatory policy for rural finance featuring “a moderately higher tolerance for risks concerning agriculture-related loans” was put forward; the year 2014 witnessed the emergence of support for qualified agricultural enterprises to go listed in the main boards and Chinext. However, with the development of rural economy, demands for rural finance grow diversified while supply of rural finance remains repressed to a certain extent, which fails to meet the financial needs. Besides, supply and demand of rural finance is rather unbalanced, hindering its economic and social progress. Therefore, breaking repressions for supply and achieving balance in supply and demand of rural finance, will be of tremendous significance for development of rural finance and economic prosperity in rural areas.This paper, based on the rural financial development in Northeast China, through theoretical studies and field surveys and summarizing of the history and current development, reveals the interactions and laws of development between rural finance and rural and regional economic development; analyzes supply and demand of rural finance, explores reasons for the repressions on supply in this region. All these, combined with drawing on good practices from aboard, the author hopes the study proves theoretically and practically contributing for financial regulation, regional financial system building and meeting financial need of rural households.This paper includes seven chapters. Chapter One, Introduction. On the basis of reviewing research results from both home and abroad, bringing about the research issue, means and goals of the study. Chapter Two, Theoretical Foundation. Overview of financial repression, financial deepening and financial restraints; discussion of subsidized credit, financial market and imperfect competition in rural areas; pointing out the significance of institutional change, especially financial innovation, for rural financial development. Chapter Three, evolution of financial system in this region. Overview the evolution, analyzing developments of formal and informal finances as well as their role in rural economic development; Chapter Four, Analysis of Supply and Demand of Rural Finance in This Region. Analyzing the current situation and features of supply and demand, and exploring the imbalance of supply and demand with the backdrop of rural financial reform. Chapter Five, Analysis of Financial Repression in This Region. Using optimal solution in game theory to see into formal financial supply; overview of the phenomenon of financial repression is this region; discussing the institutional reform of informal finance in connection with formal finance. Chapter Six, Comparisons Between Models from both Home and Abroad and Lessons. Drawing lessons from rural financial development in the US, Japan, France and India to serve as references for rural financial development in this region. Chapter Seven, Ideas and Measures for rural financial development. Putting forward principles for rural financial development in this region; exploring paths and optimized measures to channel financial supply into rural financial market.Basic theories of this paper: commercial exit of formal finance in this region, restraint faced by policy-based finance, weakness of cooperative finance, supply of rural finance failing to meet demands in this region on account of absence of formal financial regulation, limited capacity of private finance; financial supply repression in demand serving as the cause with the manifestation of limited market access and interest rate control, giving rise to induced institutional innovation. Judging from developmental models in and out of China, general options for rural financial development are local perspective, legislation, government support, market playing the leading force. As a result, efforts must be made to channel financial supply into rural finance using a combination of direct, indirect and intermediary entries by commercial banks, with adherence to the principles of self-generation and diversification, on the basis of the conditions of this region. In the meantime, further progress must be achieved to optimize rural financial environment through improving credit checking system; to build organizational systems for rural finance and to innovate products and services in rural finance; to upgrade rural financial institution and administration, to improve supportive policies for rural financial development and to break the conflicts between supply and demand with the aim of beefing up developmental capacity of rural finance.