Study On Financial Support System In Agricultural Development

Since the reform and opening up, China has received remarkable achievements in economic construction. However, as the biggest developing nation in the world, China didn't solve agricultural problems well, so as to make"Three Rural"issues severe. Therefore, to solve"Three Rural"issues fundamentally becomes the key to promote China's sustained and coordinated development and build a harmonious society. In order to realize agricultural development, rural prosperity and farmers'richness, we need the support of all aspects, of which financial support is essential.Inadequate financial support is one of the main bottlenecks in restricting agricultural development in China. Corresponding to the dual economic structure led by long-term implementation of focusing on cities but ignoring countries, China's financial sector has shown significant features of duality, that is, well-developed and modern city finance and traditional and backward rural finance co-exist. Backward rural finance cannot meet farmers'basic production and life credit. For example, state-owned commercial banks have withdrawn from the rural areas, leaving rural credit cooperatives; most countries cannot obtain policy-oriented financial services; the serious imbalance between supply and demand of credit comes up, only few farmers can enjoy credit services supported by formal financial sector; the scarcity of credit resources makes rural credit rent-seeking phenomenon popular. Farmers who want to make loans have to pay an additional sum of human costs and commissions in addition to payment of interest on loans. If agriculture has a lower rate of return, it cannot afford high-cost credit services. Because of inadequate supply of formal financial services, farmers can only seek a higher interest rate loan——civil finance, which indirectly stimulates rural folk finance, resulting in the emergence of dual structure in which formal financial organization and folk finance co-exist, namely, China's rural finance has the feature of"double duality". Financial constraints bind up seriously farmers'income, rural prosperity and agricultural development. China's reform started in rural areas, but the pace of rural financial system reform has lagged far behind that of the whole economic system reform. Rural financial reform and development has shown repeats over and over again. And the duality of urban and rural finance aggravated. Since 1979, China began to resume and establish rural financial institutions in succession and carried out the reform of rural credit cooperatives and agricultural insurance. However, the reform of rural credit cooperatives was fruitless largely and accumulated a huge number of non-performing loans and operating losses, making them difficult to sustain. The commercialization of agricultural insurance sector leads to its shrink. In the mid-90s, prevention and control of financial risks became the key target of the whole financial reform in the wave of commercialized reform of state-owned banks, especially after the Asian financial crisis, which resulted in the target of deepening rural financial system reform put forward in 1996 was deviated once again. Four major commercial state-owned commercial banks have withdrawn the countryside, leaving rural credit cooperatives supporting solely the rural finance. The development of rural finance was caught in trouble. Since the 16th Congress of Communist Party of China, with major breakthroughs in some erroneous concepts, target-raising of building new rural areas, in particular the increasingly obvious rural financial constraint, all of these allowed China to accelerate the pace of rural financial reform. In 2003, the reform of rural credit cooperatives was in full swing; every region carried on active exploration and innovation around the requirements of new round of financial reform; In December 2006, the CBRC issued the"Some Opinions on Adjustment to Extend Access Policy of Banking Institutions in Rural Areas to Better Support for the Construction of New Socialist Countryside". Later, a number of new rural financial institutions sprung up such as village banks, small loan companies, rural financial credit union and so on. The emergence of these new-type rural financial institutions broke the monopolistic situation of rural credit cooperatives and rural finance showed a sign of a wide range of competition. However, the imbalance between supply and demand of rural finance remains. Based on feedback information from various places, new-type rural financial institutions are in poor operation and present many problems. On the one hand, Village banks have difficulties in drawing deposits, small loan companies also show continued development issues due to the same problem. Peasants are not enthusiastic in participating in financial credit union. Such new rural financial institutions are still immature and incapable of competing with rural credit cooperatives and large commercial banks. On the other hand, new-type rural financial organizations, apart from financial credit union, are commercial institutions, providing credit services with higher charges which low-income agriculture cannot bear. Driven by profit, these financial institutions preferred to loan to non-agricultural sectors. The rural financial reform is not a pure market-oriented issue, which cannot solve the fundamental problem of rural finance only by market-based promotion. The weak nature of agricultural production demonstrates that rural finance has higher cost and bigger risk than urban finance. Only by taking effective measures to defuse these hard problems, can the dilemma be solved fundamentally rural finance is faced with.Financial support for agricultural development issue is a global problem. Just like every country will have to go through the"dual structure"phrase, the financial duality also generally exists in some certain period of each country. Economic duality is bound to lead to financial duality. The profit-driven nature of capital renders it flowing into high-return modern industry from low-return traditional sectors. If there is no necessary policy intervention by central government, the financial duality will not diminish and will increase instead, which leads to further widening the gap between urban and rural development and strengthening the duality of economic structure.Financial support is the key means for developed countries to supporting native agriculture. All countries are prone to support and protect native agriculture because agricultural production owns natural weakness and agriculture lies on the strategic foundation for national economy. Developed countries, with their abundant economic strength, possess stronger capability of coordinated development. Through providing agriculture with solid financial support and sound social service system, they enhance the competitiveness of domestic agriculture, successfully resolving the issues of agriculture, rural areas and farmers. On the contrary, developing countries, or because of resource constraints, or because of inappropriate policies, don't provide strong financial support for agriculture, resulting in serious agricultural development problems. Thus, learning successful experience from developed countries and some major lessons from developing countries, we can better advance the reform of China's rural financial deepening and fundamentally solve the"three rural"issue.In recent years, as the"three rural"issue highlighted, as well as rural financial reform deepening, domestic and foreign scholars pay unprecedented attention on China's rural finance and many related research and writings come out. Foreign scholars focus on such issues and enrich their financial development theory in accordance with China's financial practice. Domestic scholars trace the dynamic evolution of financial development theory, making real-time comments, comparing it with the practice of China's rural finance, and introducing some advanced experiences and writings of developed nations.Unfortunately, rural financial reform in developing countries is not successful guided by western classical theory. Some prescriptions for developing nations made by some prominent western economists do not come into effect. And numbers of internationally recognized successful experience do not also work well in China. For example, establishing rural cooperative economic organizations and rural cooperative finance is internationally recognized as the means of solving the"three rural"issue. But nobody knows why such organizations cannot be built well. Even if some have been set up, they are mostly nominal, and difficult in serving peasants. Establishing comprehensive rural policy finance is the successful method for developed countries to solve agricultural problems. However, China's agricultural policy-oriented finance is unsatisfactory. After sorting out western classical financial theory as well as a broad range of writings, these puzzles do not still get a satisfactory answer.At present, China has entered economic development period of"giving more to rural areas, taking less"and"industry nurturing agriculture and cities supporting rural". Then, how to do that? In my opinion, building a sound financial support system for agricultural development is the entry point. In this paper, based on sorting out rural financial classical theory and a sum of research results of previous studies systematically, we analyze successful experiences of the major developed nations and some developing nations comprehensively, review the history of China's rural financial reform and in-depth analyze the current main problems of China's rural financial sector, as well as some shortcomings in the rural financial reform. At last, some measures and proposals about how to deepen the rural financial reform are put forward.