| Non-observed finance is an important part of rural China’s finance. It is attracting more and more attention because of its important significance to the social and economic development of rural China and special importance to the issues of agriculture, rural areas, and farmers. However, unexpected systematic regional crises and accompanying malignant events such as financial crashes, avoidance of debt payments by running away, and suicides make people tend to "hide the sickness for fear of treatment". In order to have a more comprehensive and objective understanding of the nature of the non-observed rural finance and a better management and control of its risks, this paper, restricted to such areas as the development of financial services, rural finance, risk management, and financial regulation, by proving its endogeneity, testifying its close relations with the social and economic development of rural China, revealing the micro mechanism of its risks and the causes of its systematic risks, and referring to related experiences and historical lessons of other countries, attempts to probe, from the viewpoint of regulation, into the risk management of the non-observed finance in rural China.First, by stating the relations between non-observed and observed finance in rural China, this paper analyzes the payoff function of both the lenders and borrowers, compares, using the incentive compatibility models, the possible financing mechanisms of the farmers, and discovers the comparative advantages of non-observed rural finance. By analyzing, through the information economics approaches, the farmers’ financing credit, this paper concludes that, due to prevalent adverse selections and moral hazards, the farmers’financing suffers a severe credit rationing through the observed finance. A study in this paper on the market efficiency of rural financing through signal transmission models, shows that without the participation of non-observed finance, only complete market failures and partial market successes could be observed, but complete and partial market successes could be observed with both observed and non-observed finances participating, and market efficiency was improved. In another word, non-observed rural finance has obvious endogeneity to rural China. Second, this papers takes the scale of non-observed money and loans in rural China as the indicator of the development of the non-observed finance; and the rural economic growth (GDP), monetary aggregate (M2), and the number of tertiary students per ten thousand people as the indicator of rural economic and social development. On the basis of a review and summery of the non-observed economy measurement techniques by the academia, together with the current achievements of measurement techniques of non-observed money and loans in China, the paper makes a projection of China’s rural non-observed money and loan scale, screens out the indicators reflecting development of China’s rural economic society, analyzes their correlation and causation, and finally finds out that they are in strong correlation and causation. Based on the conclusion, the paper establishes a synthesized system equation model, and through this model, finds that non-observed money and loans in rural China are remarkably correlated, providing further proof that China’s rural non-observed finance is endogenous.Third, the paper takes for example the"Biaohui", loan clubs prevalent in rural China, and, through case analyses and a summary of the specific forms of possible risks, systematically researches the risks of non-observed finance in rural China:1. Through basic cash flow splitting models with appropriate generality and one-on-one research, it is found that information asymmetry is the cause of micro risks;2. Profound research of micro mechanism of the bankruptcy of "Biaohui" and the different strategy choices of different subjects shows that the number of "Biaohui" members, size of the fund, qualifications of "Biaohui" leaders, and exit cost are the main causes of the bankruptcy of "Biaohui";3. Through a careful study of the forming mechanism of the systematic risks of "Biaohui", this paper holds that the wide spread arbitrage opportunities are the incentive for the speculators, that information shielding and signal sending are their means, and that the high exit costs constitute and barrier for stop-loss orders.Fourth, through a review of the regulatory history of Chinese government over the rural non-observed finance, this paper makes a detailed analysis of the issues of the unobserved finance in rural China. Internationally, coutries such as the United States, Japan, Bangladesh and China’s Taiwan region each are all object lessons in risk management and control for non-observed rural finance. To construct our own financial risk management system for the non-observed rural finance, we should take into consideration of principles, methods, and mechnisms. Effective regulation and risk control could be achieved by adhering to principles of legal regulaiton, attaching equal importance to both strictness and benefits, and differentiated regulation; through governmental regualtion, trade regulation and self-regualtion; and by mechanisms of information detection and credit reference systems, coordination between regulatory bodies based on information sharing, risk warning, and emergency contingency plans.Finally, with a systematic summry of the above conclusions, the paper puts forward its policy suggestions:development of non-observed rural finance in China should be promoted; risks of non-observed finance should be positively prevented; and mechanisms of forced exit and legal regualtion and supervision should be strengthened. There are of course flaws in both theoretical and practical studies in this paper. Together with the quickening of the development of the market, urbanization, and reform of the financial system, and with the improvement and innovation of related theories and research approaches, this paper will pursue a new height and depth in research. |
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