A Study On The Rural Finance Problem Of Rural Economic Development In China

In the process of industrialization and urbanization, rural development problems includingrural income increasing slowly, urban-rural income gap and rural social conflicts stern are soserious that affect the stable development of national economy. The paper thinks it is a rightnessbreakthrough to solve the problem of rural finance because the rural economic development isindispensable of financial support that is the core of modern economy. There are many problems tothink. After reform and opening up, although the rural economy takes the lead in development, theaccumulation of agriculture itself was unable to meet the growing rural capital demand with thecapital gathers to city under the guidance of the industrialization and urbanization strategy; Ruralcapital outflows because the support of financial institutions to the rural financial is not enough;Considering public financial support for agriculture has only developed rapidly in recent years,informal finance has become a crucial channel of rural finance, nevertheless, in the absence ofstandard and control, there is serious distortion in the development of rural informal finance. So it isencountered with problems like misplacement and unreasonable structure in reality though the ruralfinancing means is rich, which mainly due to absence of suitable theoretical support in the study onrural finance and of close integration of theory and practice.Based on theory and methods of law and economics, the paper analyze the financing problemsin Chinese rural economic development utilizing normative analysis, comparative analysis, statisticsand econometric analysis and inductive and inductive analysis. This thesis is divided into eightchapters: firstly, it constructs a theoretical framework for analysis of rural finance based on law andeconomics from the perspective of law and economics and selecting fairness and efficiency as thestarting point; secondly, it draws experiences on the basis of foreign rural financing experience oftypical countries and regions; thirdly, it analyses the history of the change of rural financing inChina by the theory of law and economics and evaluates the performance of rural finance in Chinaby empirical research; lastly, it recommends the paths of rural finance reform and policy from theview of law and economics.Major conclusions of this thesis are as follows:The thesis constructs a theoretical framework for analysis of rural financial problems from the prospective of law and economics. It first introduces law and economics from aspects such asresearch object, research methods, basic theory, etc. at the same time the paper defines the conceptof rural finance that including rural formal finance, rural informal finance and public financialsupport for agriculture, rural informal finance and formal finance can substitute for each other, andthe former one is useful supplement to the latter one, public financial support can guarantee thesupply of rural public goods, and make up for the deficiencies of formal and informal finance;furthermore, the paper analyzes rural finance problems from the perspective of law and economicsemphasizing both fairness and efficiency. It analyze the efficiency changes of rural financeapplying legal supply and demand theory and then proposes that legal regulation imposed on ruralfinance is the key to solving rural financing difficulties and achieving both fairness and efficiency.The experience of rural financing development abroad has the enlightenment to our country.The thesis summarizes the experience in rural finance development of Japan, Germany, the UnitedStates, Bengal, Zambia, India, etc. It also summarizes the experience in public support foragriculture of the United States and India. The conclusion drawn from foreign experience is that acountry should construct a multi-layer, multi-channel rural finance system according its ownconditions and perfect its legal system in economic development. Besides, public support foragriculture is also an imperative way of supporting rural economic development.The thesis analyzes the historical changes and the reality problems of China’s rural financeusing research methods of law and economics. In the aspect of financial system change, this thesisfinds out that the development of China’s rural financial system has formed path dependence on thegovernment. China’s rural financial development is a typical mandatory system change process,during which informal financial activities and establishment and perfection of supporting institutesand facilities are ignored. In the case of public financial support for agriculture, it has only becomea means of rural finance in recent years after agriculture tax has been lifted. Before this, thegovernment has been transferring rural surplus to promote industrial development. As for thepresent development status, although China’s rural finance has been developing rapidly, it has beenconfronted with various problems: First, rural financial supply can’t meet the need of increasingfinancial demand; Second, rural financial system is not complete, market position of financialinstitutions is not clear, operational effectiveness is relatively low, and related law and regulationsare not well-established; Third, the scale of public financial support for agriculture should be further expanded, support structure needs to be adjusted, and policy system should be perfected.The thesis evaluates the performance of China’s rural finance. Loan-deposit ratio of formalfinance has declined rapidly, and rural loans cannot meet the need of financial demand. The scaleand types of public financial support for agriculture have been building up ever since the beginningof the new century, but public financial support needs further improvement. As for informal finance,its ratio is much higher in rural area than in urban area, which indicates that rural population has torely on private capital without sufficient support from formal channels. This thesis found that ruralfinance has prominent impact on rural economic development that meanly reflected rural loan andpublic financial support for agriculture all contribute to agricultural development and increase offarmers’ income in the long term by constructing an econometric model and analyzing theperformance of rural finance.This thesis finally proposes system design and path selection for China’s rural finance reform.It proposes an institutional system design for China’s rural finance reform through analyzing thereform target and orientation. The thesis illustrates reforms of formal finance, public financialsupport for agriculture and informal finance respectively. It designs realizing paths of rural financereform both in terms of time and space. In terms of time path, it presents the priority sequence ofrural finance and public financial support for agriculture. As for space path, it emphasizes thecombination of “bottom-up” and “top-down” reform paths.This thesis has originality in the following three aspects:First, it has constructed theoretical framework for analyzing rural finance from the perspectiveof law and economics. Fairness and efficiency is a classical proposition of economic study, whilelaw and economics provides insights into the balance of fairness and efficiency in rural finance.Three aspects of rural finance including formal finance, public financial support and informalfinance are varying in their role in promoting fairness and efficiency. In order to achieve fairnessand efficiency, legal regulation should be applied in the design of rural finance system, which canchange the balance between supply and demand and therefore propels rural finance development.Second, it has analyzed the development and changes of China’s rural finance based on lawand economics. Under the theoretical instruction of law and economics, the thesis finds out that thedevelopment of China’s rural financial system has formed path dependence on the government.China’s rural financial development is a typical mandatory system change process. China’s rural finance development leaned against regulatory policy management with construction of laws andregulations lagging behind. Its development focused on formal financial institution, but ignoredestablishment and perfection of informal financial activities and correspondent supporting facilities.Third, it has evaluated the performance of China’s rural finance under the framework of lawand economics. Based on the concept of fairness and efficiency of law and economics, this thesisdivides rural finance to rural formal finance, public financial support for agriculture and ruralinformal finance. Empirical study proves that, rural informal finance has become an essentialcomponent of China’s rural finance and it plays a crucial role in promoting efficiency in ruraleconomic development with rural formal financial supply being insufficient. Meanwhile, as specificform of government’s support for agricultural development, public financial support for agriculturenot only promotes fairness, but also benefits agricultural development and increase of farmers’income. Future financial reform should guide the transition of informal finance to formal finance,because formal finance has a greater role in promoting rural economic development than publicfinancial support for agriculture.Finally, it should be noticed that this thesis is an initial attempt to analyze financial problems inChina’s rural economic development under the framework of law and economics. There are stillsome deficiencies which need to be perfected.