Study On The Rural Financial Risks Of Rural Financial Institutions In Less Developed Areas In China

Finance is the most important part in modern economy, in the sameway rural finance is the heart of rural economy. The study of ruralfinance should not only include the relationship of supply and demandand the distribution of financial resource, but also the rural financialrisks. In recent years, especially after the Asian Financial Crisis, thereare much research on financial risks in China, but most of these researchwere emphased on how to strengthen the supervision of central bank andhow to reform the four state commercial banks. There are few of stUdieson rural financial risks especially the financial risks in less developedareas. In fact, as other financial institUtions, many rural creditcooperatives (RCCs) and township branches of the AgricultUral Bank ofChina(ABC) are in bad condition, may be the financial risks in theseinstitutions are even higher than those in four state commercial banks.Our data come from surveys we conducted of rural creditcooperatives and township branches of the AgricultUral Bank of China inShanxi and Sichuan province. In each province, six representatives ofcounties were selected from different regions of each province. Wthineach county four townships were randomly selected after stratificationby industrial outPut per caPita. In total, 46 townships in l2 counties weresampled, and 63 ABC branches and RCCs in these townships weresurveyed. In each county separate interviews were conducted with thecounty ABC branch and the county RCC association. Interviews werealso conducted with government officials and a sample of enterprisemanagers in each township.Based on the analysis of the data in l994, l997, and l998, we drawsome conclusion as following: the financial risks of the surveyedinstitutions in l997 is the highest in those three years (risk index is0.305), the financial risks in l994 is the lowest (risk index is 0.252). Thistrend is consistent with the ratio of non-performing loans. In l994, theratio of non-performing loans is 28.6%, and it increased to 36.5% inl997. From l997 to l998 the non-performing ratio slightly decreased to36.3%.Based on theoretical analysis, we can see that the four mostimportant reasons aroused China's rural financial risks are the improperpolicy and govemment intervene, the badly management or deliberatelyavoid repayment of the enterprise managers, the badly management ofthe financial institutions. From the result of econometric model we cansee that six variables have significant impact on rural financial risks.three variables (the income per caPtia in financial institutions, the timethe credit clerk spend on censoring loans and average income of theAner in those townships) has positive impact on rural financial risks,and other three vallables (the percentage of the loans that financialinstitution put out in its area, the time the directors of financial institutionspend on censoring loans and the time the director of financial institlltionhad meet the main leaders of local government) has negative impact onrural financial risks.In the end of the thesis, we made some suggestions on how to wardoff or diminish the risk faced by ruraI financial institutions: first, weshould reconstruct these financial institUtions with high financial risks,and peal off those non-performing loans to promote the management ofthe financial institutions. Second, we should reduce the improperintervene of local government. Third, strengthen financial supervisionand the management of the financiaI institutions vigorousIy. Fouf,establish modem enterprise system quickly. Five, carry out microfinanceproject.