Solutions Of Rural Demand-based Financial Repression In China

Chinese economy has gained great achievements since the open and reform policy was implemented, however the issue of agriculture, rural areas and peasants is still a significant problem. In recent years, rural economy is holding a decreasing proportion in the national economy and the income gap between urban and rural residents is widening, especially in the middle and late 1990s, at that time, the absolute value of the income of peasants is even declining. The reason for this phenomenon is various, but the main one is the rural financial problem.Nowadays, there are many problems in rural financial system:Imperfect rural financial organizations, the state-owned commercial banks'dismantling and merging branches below the county, poor asset quality of rural credit cooperatives; the cutting support to the Agricultural Developmental Bank. All These above problems led to a large amount of capital migrated from rural areas to urban areas. It's difficult for farmers to obtain loans from the formal financial sector. Besides, the active Private financial activity increases the financial risks in rural areas. The Root of the rural financial problem lies in the existence of financial repression in rural areas under China's rural finance dual economic structure.Rural financial repression is divided into rural demand-based suppression and rural supply-based suppression. The former one is caused by few rural financial institutions, few banking outlets, a small amount of capital and inadequate aggregate supply, while the latter one is brought about by low level of commercialization and monetization, Difficulty in obtaining loans and crowding-out effect of Private financial institutions. Rural demand-based suppression lies in the lack of effective demand for loans from the peasants. This leads to a serious shortage of investment in agriculture. Therefore, studying the causes of rural demand-based financial repression, exploring the ways to solve rural demand-based financial suppression is significant to solve the shortage of financial resources in rural areas to raise investment in agriculture, increase farmers'income, and develop the rural economy.The research ideas of this essay are as follows:based on financial suppression and financial deepening in financial theory, I analyze the cause of the existing rural financial suppression in rural areas and to learn Japan and South Korea's experience in dealing with agricultural finance by studying their rural finance. Finally, I put forward the suggestions and strategies of solving the problems of rural demand-based financial suppression by learning the experience of Japan and South Korea in rural finance and considering the actual situation in our country. The conclusions of this essay are as follows:Firstly; China's need-based financial depression phenomenon in rural areas is an objective existence. Specific indications are:farmers'saving balance is continually growing while the investment in agricultural production is seriously in shortage. And the phenomenon of outflow of rural capital and non-agriculture of Agricultural Credit Cooperative Loans is getting more and more serious.Secondly:the peasants are rational. They will consider the benefits and costs of loans when they are making decisions. In terms of the capital supply, the peasants can borrow and loan from formal financial institutions and non-formal financial institutions. China's non-formal financial institutions bear advantages in loans for farmers, Due to blood, geography, and the popularity advantage. The profits of agricultural investment are relatively low; and the national rate control leads to high hidden cost.Thirdly:The agricultural production in Japan and South Korea are relatively labor-intensive, they have a long history of farming culture. Japan and South Korea belong to newly developed capitalist countries, their financial systems have obvious Man-made color. All of these are similar to those of China. China is currently in a period of rapid economic growth, Similar to the rapid growth of Japan in Post-war period and the economic take-off of South Korea in 1960s-1980s. Learning the experience of the rural financial development of Japan and South Korea is beneficial to solve the problems of rural demand-based suppression in our country. After world War II, rural areas in Japan and South Korea have also been faced the problem of shortage of funds. The loan from formal financial institutions only takes up a small proportion in the loans of peasants. Japan and South Korea take many measures such as:Increase financial support for rural countries and agriculture, vigorously develop rural cooperative economic organizations and cooperative financial institutions, and establish a sound credit system. All of these solve the problems of the shortage of capital of rural areas and enhance the rural economic development.Fourthly, the government has taken a lot of reform measures in order to promote the economic development in rural areas and increase the peasants' income. These measures include increasing financial support for rural areas, promoting the reform of rural cooperative, establishing policy-oriented Agricultural Insurance Company, and loosening the restrictions on the entry of rural finance. But these measures are only considered in terms of supply, there are still various problems to implement them.When we are trying to solve the problems of rural demand-based suppression, we can not rely solely on financial instruments, but should draw on the experience of Japan and South Korea. By use of the support from finance, banking and insurance and developing Rural Comprehensive Economic Cooperation Organization, we can change the status that the farmers don't loan from formal financial institutions. At first, we must loosen the restrictions on the interest rate of rural financial market in order that the financial institutions are profitable by giving loans to peasants. While we are loosening the control on the interest rate of rural financial institutions, the state should offer some interest subsidy for farmers' loans in order to avoid the adverse effect brought by increased interest rate. Then we must stabilize the income of farmers by improving the system of agricultural subsidies and the policy-oriented agricultural insurance system. Thirdly, establish a comprehensive economic cooperation organization to guide the farmers in purchasing the means of production, in their agricultural production and Agricultural marketing and processing. So the productive capacity of farmers and the market negotiating position can be improved. Finally, we must establish a sound credit system of loans to farmers to maintain stability of the rural financial system. On one hand, we must establish a loan insurance system to reduce the risk of the financial institutions of lending to farmers. On the other hand, we also should establish a security company policy to provide loan guarantees for farmers.The innovative ideas of this essay lie in as follows:Firstly:I think that in order to solve the existing problems of China's rural financial suppression should start from the financial needs. (The scholars have done many researches on the issue of rural supply and demand. Because of the obvious embodiment of supply-based financial repression, the government tends to take some observable measures. Most of the scholars just made researches on supply-based rural suppression. They hold the opinion that the widely existed rural financial suppression are caused by few rural financial institutions, few banking outlets, a small amount of capital and inadequate aggregate supply, But the effect of the reform of rural financial supply is far from satisfactory. And the phenomenon of the shortage of financial resources has not gained a fundamental change. Secondly, I bear the idea that we can not solely rely on financial measure but also other means in order to solve the rural financial problems. Our government works hard in loosening the restriction on interest rate and providing an excellent policy and a healthy legal environment and promoting the development of the rural financial cooperatives. Apart from the two points mentioned above, another innovative idea is that combined with the national status of China, I draw the successful experience on rural finance of Japan and South Korea. I believe that this must be of great help to solve the problems of rural demand-based suppression.