China's Rural Financial Supply Model Study

Finance is the core of modern economy, Sound financial system can function well as mobilization of funds, a reasonable allocation of resources and play effective role of risk diversification, and promote capital formation. Precisely because of this, in developing countries finance has also been seen as the important means of transformation of traditional agriculture and developing the rural economy. However, the reality is often not consistent with the aspirations. From a global perspective, insufficient supply of rural finance has become common problems all developing countries face. How to explain this phenomenon, how to break the supply of rural financial difficulties, how to avoid the "financial hole," become an important issue Development economists and governments need urgently to solve.In this paper, China's rural financial supply is the key research targets, through comparative study at home and abroad, a careful analysis of the difference between the rural financial and non-rural finance, in particular the differences between supply problem of rural financial with the financing problem of small and medium-sized business. Article summed up a range of concepts and definitions, such as effective rural financial demand, the relative lack of supply and absolutely insufficient supply. And on this basis, from three levels the paper identified standards and meaning of insufficient supply of rural financial, and does the necessary concept preparation to explain the insufficient supply of rural finance. About the supply of rural finance, it lack of a scientific theoretical foundation and analytical framework until now. The traditional theory of the three major rural financial supply only analysis parts of the characteristics abstracted from the rural economy environment, without taking into account the essential characteristics of rural finance, leading to their explanation for the difficulties to supply of rural financial lack of convincing, and little effect policy proposal is given.This article holds that the rural financial to become an independent object of study and question, the fundamental reason for this is that rural finance means agriculture and rural development need public financial services, and contradict financial products is private. This contradiction are intertwined the characteristics of the rural economy such as the information asymmetry and high transaction costs and weak industries, and led to inadequate supply of rural finance. Specifically, the article first of all to build a rural finance model of total supply and total demand, based on this tell the differences between credit rationing caused by information asymmetry and the insufficient effective demand caused by nature of rural finance. Comprehensive analysis of the results showed that, the supply of rural finance must be a government - Market interactive process, any single supply mechanism can not independently accomplish the mission of the supply of rural finance. Subsequently, the article separately examined various factors and the micro-mechanism of function impacted the aggregate supply curve, aggregate demand curve and line of credit rationing balanced, under the framework of the government-market interaction. This article concludes that, in the current process of rural financial supply, the small and medium-sized financial institutions, the Sub-loans and micro-credit, etc. are more appropriate to financial institutions and the signing method, but they can only push the marginal aggregate supply curve shifted to right and has played a larger role in the settlement of credit rationing, but it can only solve the plight of the rural financial supply thoroughly through the Government's structural reforms, institution building and other support measures to enhance effective demand for rural finance, which is the fundamental way to make the total demand and supply of rural finance balanced.The whole paper is divided into seven chapters. Chapter I is introduction, points out the background reality and the theoretical significance of the topic of this paper, as well as the paper's methodology, the framework structure and innovation points. Chapter II for the theoretical synthesis of the important theory gathered three parts of research results, namely, rural finance for the rural economic growth, the theory of rural financial supply and micro-finance organization theory. Chapter III presents a basic framework of the study of rural financial supply. Did the careful definition and analysis of the basic characteristics, concept and nature of rural finance, the article set up a rural financial model of total supply and total demand, and the government - market interactive analysis framework. Chapter IV is a research of system of rural financial institutions. From the beginning of this chapter, the following three chapters separately study all factors influence the market equilibrium in the total supply and demand model. This chapter set up a financial institutions organization model based on cost-perspective, compare the various financial institutions in rural areas on the efficiency of financial markets and its impact on promoting the supply of rural finance. Chapter V is a study of financial credit contracts. Under asymmetric information framework, it mainly compared the modern financial contracts and the micro-credit, analyzes a variety of advantages and limitations of micro-credit in rural financial markets. Chapter VI examined a variety of factors impact aggregate demand curve of rural finance, and focusing on analysis of the Government's function of the intervention on rural product prices and production, as well as the function mechanism of how this kind of intervention improve the rural sector investment rate, in circumstances that other conditions are not changing, improving the rate of investment income eventually will promote effective demand of rural financial.In this paper, the innovation embodied in the five areas: First, the article establishes standards and the meaning of insufficient supply of rural financial on three levels, set up a frame of reference for the research of the supply of rural financial; Second, the article extracted that the fundamental nature of rural finance is that for agriculture and rural development financial services is public and financial products of the contradiction is private, and carried out the analysis on this basis; Third, the article summed up concepts such as the rural financial effective demand, relative insufficient supply and absolute insufficient supply, and use it in various analysis of rural financial markets balancing; Fourth, the article set up a aggregate supply -aggregate demand model of rural financial, under this unified framework systematically taking into account the factors and mechanism that impact the supply and demand balancing of rural finance; Fifth, the article proposed a government-market interaction framework of rural financial supply, and in this framework are discussed in detail the respective functions mechanisms and division of the role of government and markets; Sixth, the article set up a financial institutions organization model based of cost-perspective, and analyzes the supply efficiency of various financial institutions in the rural market.