Analysis On The Plight Of China's Agricultural Policy-baced Finance And System Reconstruction

In 2008, the Chinese economy has still maintained a stable and fast development in front of crises in grains, energy, and finance spreading all around the globe.In future, it is closely related with the solidness of the base of Chinese agriculture as to whether the locomotive of China can drive stably in such a difficult environment.Issues of agriculture, farmer and rural area are problems of China, which are intertwined with four critical but weak groups infecting national stability.Resolution on Some Important Issues Regarding Promoting Rural Reform and Development approved in the Third Plenary Session of the 17th Central Committee of Chinese Communist Party pointed out that"issues of agriculture, farmer and rural area are related with the general layout of development of the Party and the country", and"generally, China has entered the stage of promoting agriculture with industry and leading rural development with cities, is entering the critical stage of accelerating the reform of traditional agriculture and taking a road to a modern agriculture with Chinese characteristics, and is entering an important period of making hard effort to break the urban-rural dual structure and form a new pattern of integrating urban and rural economic development".Finance is the core of modern economy, while the rural finance is the core of modern rural economy.Only by strenuously developing rural finance, trying best to meet the financial demand from agriculture, farmer and rural area, and ensuring the sufficient capital supply, can the important and strategic issues of agriculture, farmer and rural area be gradually solved.The present rural financial system, however, is a multi-layer multiple financial system made up of regular and irregular financial institutions, such as rural credit cooperatives, commercial banks, policy-based banks, postal saving banks, and private financial institutions, etc, confronting a challenge of insufficient credit capital, serious capital outflow of rural capital, a difficulty for farmers and small and medium-sized enterprises to finance, and a difficulty in the finance of quasi-public goods, such as rural infrastructure, poverty alleviation development, and medical care and education, etc, as well as a serious lag behind in rural insurance.The fundamental solution to these problems related with rural finance lies not only in the development of rural commercial finance in diversified forms, but more importantly in the development on the functions of policy-based finance for supporting the agriculture, farmer and rural area, as well as in the complementing and leading role of commercial finance, so as to effectively solve the market failure while solving the problems of financial monopoly in rural area, which has been approved internationally.This dissertation, based on the policy-based financial theory for agriculture and combined with the practical demand for policy-based finance, has explored into the policy-based financial problem from the perspective of the supply of public goods in rural area, financial functions theory and new institutional economics, and has formed a new and comprehensive perspective of research by adding the current instructive exploration made in the perspective of institutional outlook and by combing the outlooks of both institution and functions.Starting from the development history of policy-based finance and its contribution to agricultural output, this dissertation has summarized from macro to micro perspectives the multiple plight during the development of policy-based finance for agriculture: the plight of the serious unbalance in the supply and demand for policy-based finance in agriculture analyzed from three aspects including the great demand, serious insufficiency in supply, and unbalance in supply and demand; serious unbalance in structure analyzed from the internal structure unbalance—the absence of policy-based insurance, to the outernal structure unbalance—the incompatibility with commercial finance; the plight in the absence of appropriateness of government intervention analyzed from the coexistence of offside and default of government; the plight of agricultural development bank analyzed from the realization of policy-based objectives and operation objectives, unbalance of assets and liability, serious moral hazard of banks and enterprises, incompatibility of business development and risk control mechanism, etc, and theoretical explanation is made with the theory and framework of new institutional economics.Just as the famous argument of Karl Marx, that"the philosophers have only interpreted the world in various ways - the point, however, is to change it."The theoretical value of new institutional economics lies in the fact that it has become the capability of explanation and analysis to practical economic phenomenon and a tool to solve economic problems before us.In front of so many plight in the development of policy-based finance for agriculture, new institutional economics is perhaps one of the best theories to provide a brief explanation.Hence, the whole dissertation, by focusing on and further research of the main idea of"theoretical ground—practical basis—multiple plight—theoretical explanation—strategies and suggestions", primarily formed the theoretical framework of the development plight of policy-based finance for agriculture as well as the institutional adjustment and restructuring.By the perspective of transaction cost, perspective of agency by agreement, perspective of government and perspective of system transition, as well as the method of game theory, the paper has deeply analyzed at the theoretic level the roots resulting to the plight policy-based finance for agriculture.By applying the analytical tools of game theory, it has analyzed whether a perfect operating environment of institutions could have made influence on the behavior of banks and enterprises and thereby to seek the condition to balance the game between banks and enterprises, in order to find out the solution of problems and realize the sustainable development of policy-based finance for agriculture and make it function effectively.Study has shown that policy-based finance for agriculture plays an important role in the development of agriculture, farmer and rural area, and it is a long term institutional arrangement which is irreplaceable and permanent.The plight in it is the problem during development and could only be solved by further development.In China, policy-based finance for agriculture is not a problem of deserving it or not, nor a problem of over capacity, but a problem of insufficiency or even a serious unbalance in supply and demand, which resulted in a low coverage of farmers for loans, difficulty for enterprise to raise capital, lack of support to infrastructure, and this has seriously constrained the development of agriculture, farmer and rural area or even affected the safety and stability of the country.Issues of agriculture, farmer and rural area are characteristics of critical but weak in China, and demand in this field is typically a demand in public goods or quasi-public goods in rural area.Due to the externality of public goods and the market failure of resources allocation, they are required to be provided by government or be provided in other routes by government intervention, so policy-based finance for agriculture is a perfect combination between national fiscal system with finance, and is an important, permanent and strategic institutional arrangement for the country to support agriculture, farmer and rural area.Policy-based finance for agriculture has extensive and special functions.Its research from the outlook of financial functions is a progress on the institutional outlook, and such a research can break the narrow view to make a limited reform within the current institutions so as to make institutional adjustment and restructuring with the special functions of policy-based finance for agriculture.It is critically important to clarify by law the position of policy-based financial institutions as a legal person with special functions.The study shows that policy-based financial institutions, due to its special functions, not only have a"commonality"of government activities but also have characteristics of enterprises which make them earn a certain income by providing financial services, enjoy a certain independence in management, and an obligation to improve internal performance, and this duality is the critical aspect for understanding policy-based finance.Therefore, the legal person in policy-based financial institutions belongs to a special legal person who is established by public law, for example, Agriculture, Forestry and Fisheries Finance Corp.of Japan, is a legal institution established in accordance with special public law, and the law shall make legal regulations on the functions, operation scope, etc so as to ensure a long-term and balance development of such institutions in the game with enterprises and government.The institutional transition of policy-based financial institutions is in keeping with the objective rules of development.There is no perfect choice in institutions but only the continuously improved choice.The analysis of problems is made to better reform and develop policy-based finance for agriculture, and to lay knowledge groundwork for a strategic adjustment and restructuring.Policy-based finance for agriculture shall be adjusted and restructured on the basis of present institutions so as to better improve the efficiency.This dissertation has proposed a basic framework for institution arrangement, that is, Function—Institution—Mechanism—Environment framework.In order for Policy-based finance for agriculture to better take the responsibility to build socialist countryside in the macro environment of comprehensively constructing socialism and harmonious society, to take the responsibility of protecting, supporting, and solving the agriculture, farmers and rural area, policy-based financial institutions shall be deeply reformed to realize its sustainable development.The position of functions shall be clarified, vertically cooperative organizational structure between officials and ordinary people shall be constructed, and the principles of policies, market, coordination and dynamic adjustment shall be persisted to better the mechanism of operation, strive to expand the capital sources, enlarge business scope, complete comprehensive risk management system, build and construct interest compensation mechanism, and to strengthen incentive compatibility mechanism.At the same time, the security system in the operation environment shall be perfected and policy-based legislation in finance shall be established, for which the social departments shall coordinate and greatly support the reform and development of policy-based finance for agriculture and make full play of its financial functions.In all, this dissertation is aimed at constructing a demand-driven system of policy-based finance for agriculture which is reasonable in structure, complete in classifications, scientifically operated, comparative in strengths, and in keeping with the development of commercial financial institutions, so as to exert its special functions as a policy-based finance for agriculture and compensate market and government failures, realize the perfect combination of policy-based finance and commercial financial institutions, provide solutions to the conundrum of agriculture, farmers, and rural area, and propel the construction of new socialist countryside.