Financial Support To The Economic Development In Rural China

Rural economy in China cannot develop without financial support. In order to develop rural economy, the current major task should be directed to promoting strategic adjustment of rural economic structure through either urbanization to transfer surplus rural labor or agricultural industrialization to restructure rural economy, both of which need accumulation and reinvestment of large amount of capitals. Only with financial support can this task be done. Current situation, however, is that most social capitals are invested in non-agricultural and highly profitable industries, and most rural capitals that are already very short in rural areas are devoted to urban areas via various channels, which severely limits the rural economic development in most parts of China. Investigation showed that since mid 1990s, it has become more and more difficult for rural enterprises and farmers to obtain loans. The shortage of appropriate financial institutions providing efficient services to the economic entities in rural areas and meeting their financial demands puts rural economic development in a difficult position. It is also one of the reasons for the slow increase in farmers' income. Meanwhile, the operation of Chinese rural financial institutions has been restricted in many aspects, which gives rise to many conflicts regarding the financial aggregate, structure, and regulations in rural economic development. In order to address these issues thoroughly, a comprehensive study is conducted in this thesis on rural finance supporting rural economic development, with a focus on the current status of rural finance and the extent to which it contributes to rural economic development. The exiting problems and their corresponding causes are also explored in this thesis, and some suggestions are provided therein as potential solutions.This thesis consists of seven chapters as follows:Chapter 1 introduces the background of this study. In this chapter, the author reviews the current situation in rural economic development in China and raises the question why it's important nowadays for farmers to get more financial support.Chapter 2 builds up the theoretical framework for rural finance supporting rural economic development. Economic growth theory, financial development theory, and rural finance theory are employed to analyze the relationship between rural financial development and rural economic development, to establish a theoretical model for the analysis of rural finance supporting rural economic development, and to set up a standard for the assessment of rural economic development. This framework provides a strong support for analyzing the current status of financial support and its contribution to the rural economic development in China.Chapters 3 to 5 constitute the empirical analysis of the financial support in rural economic development in China. Firstly, a model of rural economic growth is established. The assessment criteria for the factors affecting rural economic growth are identified, and a quantitative analysis of rural finance's involvement in rural economic growth is performed. Differential analysis is also carried out on the contribution of rural financial support among the areas of various developmental levels. Secondly, case studies are applied to examine the situation of rural financial market in China, and to investigate that whether or not and to what extent the demands of rural economic entities for financial services are met, which is one of the important criteria for assessing the rural financial contributions to rural economic development.Chapter 6 shows the existing problems and their causes in financial support to rural economic development. By relating to the rural financial reform in recent years, the problems existing in rural financial institutions and on rural financial market are examined, the causes of these problems are investigated with regard to rural financial systems and financial management systems, and the influence of the external environment in rural areas on the supportive role of rural finance is elucidated.Chapter 7 recommends some strategies to enhance the contribution of rural financial support to rural economic development. These suggestions include further promoting the overall reforms of rural financial system and optimizing the external environment of rural economy.Based on the theoretical and empirical analysis stated above, the major conclusions are drawn as follows:1. Financial support plays a positive role in promoting rural economic growth. Quantitative analysis indicates that there is a significantly strong and positive relationship between rural financial development and economic growth, and that the increase in the allocation of rural loans can promote the rural economic growth. Thus, more credit input is needed in order to develop rural economy and to increase farmers' income. There is a positive correlation between the growth rate of rural residents' income and real interest's rate and the growth rate of the gross rural product, indicating that the increase in rural resident income and the real interests will help to increase savings, which will result in an increase in capital accumulation and output.2. The contribution ratios of rural finance to rural economic growth are low in China. Compared to the contribution made by the nation-wide financial system to the overall economic growth, the contribution of rural finance to rural economic growth is much less. Furthermore, the contribution of rural finance to rural economic growth in underdeveloped areas is much less than that in developed areas. Quantitative analysis shows that rural creditloans allocated to developed areas are more efficiently used than those allocated to underdeveloped areas. As the result, rural capitals are flowing into urban cities and developed areas through various channels, which further increases the regional imbalance in rural economic development.3. There is a significant imbalance between the demand and the supply on the financial market in underdeveloped areas in rural China. The major factors which influence farmers' financial demands include farmers' income, operational investment, consuming expenditure, financial assets, and farmers' intellectual level, labor skills and so on. Due to the reconstruction of agricultural production and the industrialization of agricultural operations, the monetary demand in rural area is characterized by multiplicity and diversity. At present, credit funds on rural financial market are under the solitary monopoly by rural credit cooperatives, showing the discrepancy between demands and supplies.4. Currently, following problems exist in rural financial development and its support to the rural economic development in China. (1): There is no integrated organizational system and the organizational behavior in rural financial institutions is unregulated, which tends to "turn away from agriculture" and fails to better serve agriculture, countryside, and farmers. (2): Competition is lacking on rural financial market due to high monopolization. Small-scale, flexible and more featured financial institutions and organizations are in short, leaving rural credit cooperatives as the only loan provider that cannot meet the scattered and diverse financial demands in rural areas.5. The major causes that hold back the contribution of rural finance to rural economic development include: (1) Defects in rural financial system. Macroscopically, the mechanism of access, regulation, and withdrawal of rural financial market has not been well established, resulting in monopolization and, herein, lack of competition on rural financial market. Microscopically, the ownership of rural financial institutions is not clarified, weakening the stimulating mechanism and restricting mechanism in management, and leading to the disconnection of responsibility with profits, which have directly negative impact on the operational behavior of financial institutions. (2) Defects in rural financial management system. Under the leadership of the United Provincial Credit Cooperatives, rural credit cooperatives that used to scatter in countryside come into factual monopolization, which goes against meeting the demands for local economic and financial development. At present, United Provincial Credit Cooperatives basically follow the model prior to the reform in distributing administrative authority and responsibility among its subordinate credit cooperatives, whilst the power for decision-making in allocating credits is more centralized than before. (3) Adverse rural external environment. National macroeconomic policy, rural economic development levels, and rural social development...