The Evaluation To The Performance Of Institutional Change From Rural Credit Cooperatives To Rural Commercial Bank

Since economic growth was attributed to institutional changes by North and Thomas (1973) first, new institutional economics theories, such as "Only appropriate institutional arrangement can lead to economic development"(Matthews,1986), have profound impact in developing countries. And these countries tend to implement institutional change when problems appear in the operations of some economies. But North (1990),Nugent and Sanchez (1993) and Rajan and Zingales(2003) found that not all of the institutional changes perform well, which was proved by the process of institutional change in China's Rural Credit Cooperatives(RCCs). Since 1950, RCCs have carried out institutional changes for several times under the guidance of Chinese government, but they are still the main force in terms of supporting rural areas (Andrew Watson,1998),even the only legal and formal financial institutions in rural community(Cheng Enjiang,2003). Moreover, the result of these institutional changes is that there were 53% of RCCs running under deficit until the late 20th century which made it hard to achieve commercial sustainability and the unavailability of financing to many farmers and township entertrises is still a major problem bothering the Chinese government.Since 2000, Chinese government has dominated a new round of institutional change in Rural Credit Cooperatives in Southern Jiangsu Province, one of its remarkable achievements is restructuring part of Rural Credit Cooperatives into Commercial Banks (RCBs).Given the poor performances of previous changes, the result of the new round of change receives a wide pbulicity.Through the case of Rural Commercial Bank Model, this paper studies the performance of this institutional change in RCCs in developed regions of China and four questions need to be solved:firstly, if the institutional change can improve the commercial sustainability of RCCs? Secondly, if the institutional change can enhance the support to rural areas? Thirdly, if the institutional change can promote the operational efficiency of RCCs? Finally, if the institutional change can really make farmers and township entertrises more satisfied with the financing from RCCs.The primary aim of this research is to make comprehensively analysis on the performance of this new round of institutional change throught both theoretical and empirical methods in order to offer ideas for supporting the reforms in RCCs and the development of rural financial system.Under these aims, there are four important parts in this research:Part one, to evaluate the commercial sustainability of RCBs, we use interrelated data of 9 RCBs and 15 RCCs in southern Jiangsu and 39 RCCs in 8 cities of Zhejiang from year 1998 to 2008 to empirically analyse whether the commercial sustainability of RCBs was improved, and whether the institutional change was positive to it without other factors.Part two,to evaluate the intensity of supporting rural areas of RCBs, we make empirical analysis to find out whether the credit funds were provided to rural areas more appropriately by RCBs, and whether the institutional change was positive to the intensity of supporting rural areas.Part three, we evaluate the operational efficiency of RCBs from the following three aspects:the pure effect of institutional change to the operational efficiency of RCBs, the way where the operational efficiency of RCBs improved and the effect of corporate governance framework to the operational efficiency of RCBs.Part four, based on the datas from investigations to Jiangyin and Yixing in Jiangsu Province in Oct 2003 and Jan 2009, we make an empirical analysis on the effect of insitutional change to the satisfaction that large, small and medium rural enterprises and individual industrial and commercial households feel about financing from RCBs.The major results of this research are:(1)Because of the institutional change, all the indicators of commercial sustainability of RCBs grew in varying degrees. Moreover, their operational safety, profitability and development capacity improved differently. All of these improved that the institutional change promoted commercial sustainability of RCBs through their self-development.(2)The effects of institutional change to intensity of supporting rural areas differed from large large rural enterprises to commercial households.The institutional change provided commercial households and large rural enterprises more financial support and reduced the negative growth of farmer loand. As a result, it also weakened the support to small and medium rural enterprises.(3)Althought the institutional change improved the operational efficiency of RCBs, but the unremarkble improvement suggested poor performance of the institutional change. Specially, the management efficiency of RCBs improved significantly while the scale efficiency of RCBs reduced due to the institutional change; the profit per capita increased while operating expense ratio per capita decreased. Overall the profit growth exceeded the cost growth, which improved the operational efficiency of RCBs. Managerial ownership play an positive role in the elements of corporate governance of RCBs.However, because of the specific environment and reasons, the largest shareholder-owned and independent directors didn't act as what they were designed before.(4) In gross sample, the satisfaction of rural enterprises and commercial households to finance from RCBs was 61.939%after the institutional change, 4.626%higher than it was before the change.0.868 double difference score suggested that the change had a positive effect on the improvement of satisfaction while the effect was not significant. In the respective analysis to different sorts of samples, the satisfaction of large rural enterprises was 66.332%and 4.528 double difference score suggested the significant positive effect the change had. This may suggest that institutional changes tend to reduce the extra cost but increase the normal cost of large rural enterprises'loan. The satisfaction of small and medium rural enterprises was 52.415%, while the negative double difference score-0.079 suggested the negative effect the change had.The reason is that the extra cost of small and medium rural enterprises' loan from rural commercal bank is increaced because of the changes. The satisfaction of commercial households was 64.332% and given the double difference score 1.337%, the change played an posive role in the satisfaction of commercial households.The explaination to these results is that the institutional changes play an positive role to other kinds of factors as well as the factor of normal cost of loan.