The Structure And Performance Of China's County Rural Financial Market

As an important link between the rural and urban economy in China, county economic development is of great significance to reduce the income gap and to accelerate coordinate development in the urban and rural area. County rural finance is the core of county rural economy, which is necessary to promote the rural income growth. Since the new century, there has been a series of reform and system innovation in rural finance, but the rural financial development still falls behind the rapid growth of the rural economy. Market monopoly and low coverage of financial institutions led to the low efficiency of rural financial market. Increasingly monopoly and commercialized rural financial institutions deduced rural credit supply, which worsen the shortage of fund supply in rural areas. In order to increase the credit supply, the Party's 17th third session definitely put forward to build modern rural financial system.On Dec.20,2006, CBRC published the policy "Increase the banking market access in rural areas to better support the construction of the new socialist countryside", which aims at moderately reducing the access restriction according to the business sustainable principle. The Central First Document of 2010 also emphasized to "accelerate the development of village banks, loan companies and rural mutual fund cooperatives and introduce social capital investment to rural financial market to establish the suitable new rural financial institutions for'three agriculture'". Introducing external competition entities and breaking monopoly have become the reform direction of solving the credit problem in rural areas. In addition, it's the focus which is concerned by theoretic studies and practice areas at present.Theory and rural financial market opening practice in some developing countries have proved that the introduction of external competitors could promote competition in the financial sector, so as to accelerate the development of rural financial market. The traditional industrial organization theory also proves that market structure has influence on enterprise's conduct and performance. However, as a typical representative of the regional finance, county rural financial market is of prominent regional characteristics. In China, rural financial market development stituations are quite different because of the difference in counties'geographical location, economic environment and policy environment. Meanwhile, the SCP paradigm in rural banking may be more complex due to the financial repression, which may lead to the different effect of the same market open policy in different regions. The existing research on this problem only scatters in many relevant literatures, and the systematic and completed research are still in shortage. The internal influence and conduction mechanism of rural financial market structure and perforrnance is unclear, and county financial industry organization analysis framework has not been formed.Based on the paradigm of Industrial Organization Theory, this thesis makes some theoretic and empirical analysis on the relationship between county rural financial market structure, rural financial institutions behavior and rural financial market performance, which aims at revealing the change rules of rural financial market structure and its influencing factors, and the mechanism of traditional SCP paradigm in county rural financial market. Finally, we provide some policy suggestions for rural financial market construction. The main contents and conclusions of the study are as follows:Part 1:the structure of county rural financial marketWe analysis the county rural financial market structure through comparative studies in the following two aspects:(1) we measure the structure of county rural financial market by structure method and non-structure method respectively to reveal the changing rule and characteristic; (2) we compare the structures between counties of different economic development level to disclose the regional differences of county financial market structure.The results show that China's county rural financial market is monopolistic competition, which is monopolized by Rural Credit Cooperatives (RCCs) with its geographical and information advantages. It is effective to promote the competition in counties by increasing the market access including cultivating new types of rural financial institutions in undeveloped counties and introducing commercial and foreign financial institutions in developed areas. In terms of the characteristics of China's rural economy and finance development non-structure estimation technique is more applicable and reliable than the traditional structural techniques in evaluating the dymatic change of China's county financial market competition during the procession of rural financial market opening. Part 2:Conduct of county rural financial institutionsIn the gradually opened county rural financial market, oligarchic competition becomes a trend. Different kinds of county financial institutions have different comparative advantages, which leads to their different competitive behavior including non-price competition and price competition. Under the completion pressure, rural financial institutions have taken a series of competitive strategies to keep their market share. Firstly, they reduce the loan price to keep the profitable customers by adopting commercial bank's pricing method. Secondly, they execute different lending policies and loan prices for different kinds of customers. Thirdly, they pay more attention to product innovation and try to adopt new credit technology to reduce loan cost and risk. Finally, they positively reform the organizational structure through organizing rural agricultural bank to improve their management and governance efficiency.We establish the RCCs credit distributing choice model based on comparative information advantage theory, which shows that the different competitive situation between enterprise and fanner loan markets has greatly changed the RCC's loan distributing strategy since the rural financial market entry was increased. RCC increase the farmer loan to maximize its profit, and RCC lowers the credit price because of completion.Part 3:Performance of the county rural financial marketWe evaluate the performance of the county rural financial market in two dimensions: institution and function. The empirical study of Jiangsu Province shows that in different competition situations, every performance index of RCCs is increasing. Efficient-structure hypothesis was supported in Jiangsu. We also evaluate the financial market performance of Jiangsu's county in terms of farmer loan account and loan price. The results show that both the average amount of farmer loan and the coverage were significantly increased. The loan price lowered due to the competition, while the business loan price decreased more than farmer loan because of the more competitive situation.The optimal rural financial market structure should meet two conditions:(1) to promote the development of financial institutions:(2) to realize the function of rural financial market and improve the welfare of the demanders. In conclusion. no matter from the institution or from the function, the optimal structure which matches the rapid development of county economy is competitive. Furthermore, according to the difference of economic development level, the degree of competition is quite different. The financial market structure of developed rural area should be pefect competitive, while in undeveloped rual area the structure should be oligarchic competition by RCCs.