A Study Of Regional Dual Finance And Their Complementation

In Guangdong province, the rural credit cooperatives in and out of the Pearl River Delta develop with distinct regional rural dual financial features. How to narrow the differences between the strong and the weak through complementation and interaction so as to realize coordinate development with the strong and the advanced leading the weak and backward is a new issue facing Guangdong rural cooperative financial institutions. But till now, there is no successful case in China for learning, nor is there a specialized study on the issues. A review of the foreign cooperative financial institutions reveals that we can borrow the foreign way of forming voluntary alliances of cooperative financial institutions. Especially in most of the countries where cooperative institutions are well developed, highly unified strategic alliances are widely formed to prevent uncertainty and risk facing individual small-scaled cooperatives. Some countries even clarify by legislation that individual cooperative institutions should join the cooperative financial system and be subject to management and service of the sector.The rural cooperatives located in the east and west wings and northern mountainous areas of Guangdong province now have many problems, chiefly heavy historical burden, poor asset quality, weak profitability, deficient governance structure and internal control mechanisms. Some especially poor cooperatives unions are even difficult in existence and sustainable development. Because of lacking outside force, the only way to solve the problem of backward rural credit cooperatives in existence and development is to rely on a series of complementary and interactive institutional arrangements within the cooperative financial system so as to realize coordinate development with the strong leading the weak, the advanced driving the backward. But to realize complementation and interaction, the precondition and foundation is the formation of a highly unified strategic alliance of individual cooperative institutions, which can solve the various problems of individual institutions.On the basis of building a strategic alliance of cooperative financial institutions, a series of complementary and interactive mechanisms can be established. The complementation and interaction consists of five levels. The first level is the complementation and interaction of provincial cooperatives union and the especially poor cooperatives unions through institutional construction, personnel training, products design, fund transfer, and information service arranged by provincial cooperatives unions. The second level is the complementation and interaction between the provincial cooperatives union and especially poor cooperatives union through funding support.The third level is the one between rural commercial banks, which derive from some advanced rural cooperatives unions, and the especially poor cooperatives unions through the ways of directional cooperation. The fourth level is after the provincial alliances union has reformed into provincial rural united bank, which complement to and interact with the especially poor cooperatives unions by holding and controlling the latter's shares. The fifth level is the provincial government and local government's help and support for the especially poor cooperatives unions.The dissertation is composed of nine chapters.Chapter One. Firstly, it compares the Pearl River Delta and non-Pearl River Delta in financial density, credit distribution, bad loan ratio, the proportion of agricultural loans, loans-to-GDP ratio, etc., and analyzes the 80/20 phenomenon in Pearl River Delta rural credit cooperatives and non-Delta cooperatives, in order to reveal that features of regional dual finance apparently exist in Guangdong rural areas. And it points out that their differences should be narrowed by complementation and interaction.Secondly, the concepts of regional dual finance, their differences, and perspectives of the research are defined. Thirdly, the significance of the topic is clarified as to seek reasonable allocation of financial resources for promoting county-level economy and new countryside construction, to seek innovative institutional arrangements and policy support for complementation and interaction of regional dual finance. Lastly, it introduces the content of the research, the framework, the research methods, the main innovations and the directions for further research.Chapter Two is literature review, which covers two parts. One is the review of dual financial researches from four aspects:dual economy, dual finance and financial geography; the space difference of regional finance; the cause of the space difference of regional dual finance; and institutional arrangements for narrowing regional financial disparity. The other is a review on reform of cooperative finance, the relations between county economy and finance and cooperative finance, as well as the organization system of cooperative finance.Chapter Three expounds the existence of dual finance in Guangdong region. First, through examining the apparent differences between Pearl River Delta and Non-Pearl River Delta area in total financial elements, financial density, financial effects, asset quality, and operation environment, it points out that regional dual financial structure and features clearly exist in Guangdong province. Then it further analyses the causes of regional dual financial structure from the perspectives of Guangdong dual economy and financial institutional arrangements.Chapter Four discusses the characteristics and causes of rural regional dual finance of Guangdong. It firstly sums up the characteristics of regional dual finance in Guangdong rural areas:80/20 phenomenon is prominent among Guangdong rural cooperative finance, and the extremely poor cooperatives is difficult in sustainable development.After that, it analyses the causes of Guangdong rural dual finance in terms of historical burden, economies of scale and scope, corporate governance structure, etc. Finally, a case study is made on technology efficiency of Guangdong rural cooperative financial institutions by DEA analysis.Chapter Five assesses the solutions to removing rural dual finance of Guangdong. Based on the achievements and problems of pilot reform of Guangdong rural cooperative financial institutions, it compares the three integral reform programs for Guangdong province. It then discusses the Further Deepen Rural Cooperative Financial Reform Program and directional cooperation program approved by provincial government.Chapter Six introduces the foreign examples of complementation and interaction of rural dual finance. It analyses the emergence and development,of foreign cooperative financial institutions, and the structure and characteristics of cooperative financial systems in major countries. It also investigates the strategic cooperative alliances in terms of organization forms and their main characteristics, as well as main ways for financial institutions to form strategic alliances to resolve the problems of complementation and interaction.Chapter Seven elucidates the reality choice of the complementation and interaction of China's rural dual finance. As for the theoretical base of the choice, it maintains that strategic alliance is the base for complementation and interaction, with consideration of the lessons from the foreign cooperative financial strategic alliances. As regards the methods of the choice, it suggests that cooperation through the tie of stock equity is an effective way to solve dual finance complementation. Lastly, the path to complementation and interaction includes development of county-level economy and new countryside construction, industry transfer and regional coordinate development, and the implementation of the Outline of the Plan for the Reform and Development of the Pearl River Delta.Chapter Eight is the implementation program of regional dual finance complementation and interaction in Guangdong rural areas. Through the assessment of the management mode of provincial cooperatives union, it suggests the direction of rural cooperative financial management system reform, i.e. change from administrative management to capital management. In the meantime, a dual financial complementation and interaction plan is brought forward. The plan is composed of five levels:fundamental complementation and interaction on the basis of forming strategic alliances, the complementation and interaction based on the business income support mode by provincial cooperatives union, the complementation and interaction based on the directional cooperation between rural commercial banks and rural cooperatives, the complementation and interaction of the future provincial rural united banks and the equity-holding poor cooperatives union, and the complementation and interaction on the provincial government and local government level. Finally, solutions are given to solve the possible policy barriers, interests of local government, and the interest appeal of rural commercial banks. By drawing the foreign experiences, it also advocates that the formation problem of strategic alliances should be solved through legislation.Chapter Nine illustrates that financial supply creates rural financial demand. It advances that financial service ability in backward regions should be enhanced by increasing financial supply. And ways are given for cooperative financial institutions to set up agricultural insurance company and to innovate microfinance mode. It also suggests resolution of the rural regional dual finance through policy directed finance.The dissertation contains several innovations.This dissertation focuses on the research of complementary and interactive institutions of rural regional dual finance, puts forward the path of integrally solving the current difficulties of Guangdong rural cooperatives with the strong leading the weak, and advances the reform direction of building cooperative financial strategic alliances and program of complementation and interaction. Since the research field is rare in China, it creates a precedent as a doctoral dissertation, with a new topic.The specific innovations are:First, through DEA method, a case study is conducted on technical efficiency of Guangdong rural cooperative financial institutions.The result proves the existence of rural regional dual finance.Second, using the cooperative mode of foreign cooperative finance for reference, it puts forward that forming strategic alliance is the precondition and foundation of complementation and interaction of Chinese rural cooperative finance. It further advances the choice of path to complementation and interaction, and advocates that legislation should be introduced to promote the formation of strategic alliances of Chinese cooperative financial institutions.Third, considering the reality of Chinese rural cooperative finance, it suggests the conversion from administrative management to capital management, i.e. to establish a rural cooperative financial system which is linked by capital, tied through stock equity, and constrained by rules.Fourth, it presents an integral reform program for Guangdong rural cooperatives and the implementation program, based on complementation and interaction with the strong leading the weak and the advanced, driving the backward.Fifth, it maintains that financial supply creates rural financial demand. It gives the policy suggestions that financial supply should be boosted in order to strengthen the financial service ability in county and countryside regions, and rural regional dual finance could be resolved through policy directed finance.