The Institutional And Empirical Analysis Of China's RCCs

Nowadays, the development of China's rural economy is facing lots of bottlenecks wherein the rural finance, in recent years, is especially highlighted. The state-owned commercial banks had to retreat from rural financial market due to the cost pressure since the end of 20^th century, and thus leave the huge "financial vacuum", needing to be filled up by other financial institutions. Although the foreign banks have been on the stage recently, the small-scale operation and simplified business at the beginning stage cannot satisfy the flourishing demand in the rural financial market. As a result, this task has been transferred to the rural credit cooperatives (RCCs). Despite the important role in the rural financial market, RCCs has still puzzled by many difficult issues, which actually has restricted its contribution to rural economic development.Summarized speaking, the main problems existing in China's RCCs include the following:First, China's RCCs are not normative in the formal institutions including property rights and regulation system, which is the biggest problem at present. On the one hand, RCCs had established the cooperative principle at the beginning stage, but due to the overdue government interference, and even the compulsory change for property rights, RCCs actually hasn't followed this cooperative principle and deprived the farmers' rights to participate in the management of RCCs. As a result, a series of problems have emerged. For example, the body of property rights is uncertain; the status of artificial person is virtual, the system of rights does not work, and the system of stimulation is invalid. On the other hand, too many ministries have regulated RCCs' management. For instance, the central government and local governments has implemented the administrative management on RCCs; China's People Bank and Bureau of Bank Regulation have supervised it simultaneously, China's Agricultural Bank and RCCs Union had carried on the industrial management several years before.Second, the development of China's RCCs has been affected by informal institutions at the same time. For one thing, RCCs are lack of good enterprise cultural and thus directly affect their operation. For the other thing, the intrinsic customs and habits indirectly bring about some effects, and the path can be summarized as: informal finance derived from informal institutions based on the asymmetric information and unmatched supply and demand, then availed itself of credit advantage and raced to contral the rural market, which threatens the development space and status of China's RCCs.Third, due to the drawbacks in formal and informal institutions, RCCs' operation is not optimistic. For example, if comparing with the other domestic banks, China's RCCs, although processing the most business networks, their scale in assets and liabilities, and that in deposits and credits is smaller than those of state-owned commercial banks and equity commercial banks. More important, their bad debts are relatively higher, and this is a big hidden trouble indeed.Considering the important status of China's RCCs in rural economy, this dissertation attempts to make an integrated theoretical and empirical analysis on it. That is, the dissertation resorts to institution economics to analyze the formal and informal institution theoretically, and apply the econometric analysis and field survey questionaires to test the institutional analysis. By these efforts, this dissertation tries to find the drawbacks RCCs have and thus provide the direction and aims for China's RCCs reform in the future.The main content of the dissertation consists of 6 chapters.Chapter 1 (Introduction) is to put forward the hook at first that China's RCCs are situated in a quite different background, facing many problems and institutional restrict. Second, it gives the definitions of China's RCCs, formal & informal instition, and formal & informal finance. Third, it introduces the methodology applying inhere, including comparative method, combination of theoretical and empirical analysis, figures and tables and case study, and lists the research logic, main contents, the possible creation and existing weak points.Chapter 2 (Literature Review) attempts to summarize the latest research on RCCs by domestic and overseas scholars and involve the following four aspects: (1) the contribution and function of RCCs, i.e. the credit supplier of rural enterprises, the main pillar of rural economy and important financial intermediary. (2) the survival space for RCCs, which can be reflected by the competitive advantage and disadvantage. (3) the theoretical and empirical analysis on the performance of RCCs, and (4) the policy suggestion on how to reform the property right and supervision.Chapter 3 (Status Quo Analysis) is to compare the development of China's RCCs. Firstly, by comparison of RCCs' all development stages and operation as well as comparison with other domestic banks, it is found that China's RCCs have improved a lot, but still lagged in some aspects. Secondly, the dissertation employs the co-integration analysis to look for the relationship between RCCs and rural economic growth. The result shows that RCCs has been playing an important role in the rural economic growth. Thirdly, the questionaire results from Dezhou, Shandong Province indicate the status quo of RCCs. Multi-regressive analysis is made using the data from Dezhou, and then finds the ratio of bad debt and diversication of equity lead to unneglectable negative effect on RCCs while the production of town-and-village enterprises produces the statistically significant positive effect.Chapter 4 (Formal Institution Analysis) is to make a theoretical and econometric analysis from the angle of formal institution. The problems in property rights are put forward on the basis of review on the change of property rights of China's RCCs, and at the same time, the review is made on administration, regulation and industrial management of China's RCCs. Then this chapter employs the DEA and panel data methodology and tests the effect of formal institution on the performance of RCCs. The results indicate that various institutional factors produce the different effect on RCCs, but totally speaking, the formal institution has not pushed the development of RCCs effectively, and thus justifies the above theoretical analysis.Chapter 5 (Informal Institution Analysis) is also to follow the logic of "theoretical analysis first, then econometric analysis". First, the effect of informal institution including enterprise culture, habit and social relationships on the existence of China's RCCs is given. Then the chapter introduces how the informal institution leads to the emergency of informal finance based on asymmetric information and unmatched supply and demand, together with how the informal finance affects China's RCCs. On the above basis, the chapter makes a test on the informal financial factors affecting RCCs in light of the questionaire in Heze, Shandong Province. The results indicate that, the preference for financial forms by traders, the choice of credit maturity, and repayment of credit produce the distinct effect.Chaper 6 (Conclusion and Policy Suggestion) is to summarize the above mentioned and design the direction of China's RCCs development. As for the property rights mode in the formal institution, all the regions should choose the cooperative mode, equity cooperative mode, equity mode and community bank mode respectively according to the different situation. As for the governance mode in the formal institution, the institution of artificial person should be reformed considering the governance of artificial person and stimulation institution. As for the regulation mode in the formal institution, it suggests that China's RCCs revise the inner control, exposure management, regulation indicators and outer restrictions. Considering the informal institution reform, the informal finance derived from informal institution can be induced and perfected including the acknowledgement of existence of informal finance, establishment of relevant rules, and transformation from informal finance towards community banks. At the same time, the formal & informal institution, and formal & informal finance should be coordinated and cooperated further.