China's Rural Financial Market Failures And Its Intervention Policy

As the strategic goal of building a socialist harmonious society being put forward, we get the opportunities to speed up the construction of new countryside, to gradually narrow the gap between urban and rural areas, and to promote integrated development of the two areas. To achieve these goals, the major problems are the "three rural" issue and to promote rural economic development. However, at present, rural economic development, which needs financial support and protection from the rural finance market, are facing many obstacles, for instance, the slow developmental pace of rural economy, the more and more serious contradiction between supply and demand and the inefficient allocation of resources, etc. All these problems have greatly restricted the development of our rural economy and national finance. Besides, they have also impeded the realization of the strategic goal of pursuing harmonious society.The contradiction between supply and demand of rural finance mainly reflects on rural credit market. Under the influence of such factors as the lack of the mortgage collateral, information asymmetry, moral hazard, adverse selection and transaction costs, rural credit rate has lost its effect as a mechanism controlling the prices in the credit market. Rural credit rationing and credit constraints become more and more severe, which signals a serious market failure. This paper mainly discusses this condition in the third part. Firstly, at a macro-level, this paper is to analyze the characteristics and functions of rural financial policies, and then at the micro-level, to analyze those relevant stakeholders of rural finance. In this way, the author tries to explore the causes leading to rural financial markets failure, with the aim to defuse the rural financial market failure and to search an efficient path of innovating rural finance market.The analysis implies that the rural finance market failure is due to the institutional and constitutive defects existing in rural finance. On this foundation, the fourth part puts forward the optional measures to resolve the market failure of rural finance. From the macroscopic aspect, a credit guarantee institution should be introduced, which would limit the financial risk and then perfect rural finance credit guarantee institution. From the microscopic aspect, the government should stimulate the development of rural consumer credit so as to revive rural finance market. The development and acceleration of rural finance needs the government to improve the efficiency of its policy interventions when innovating the environmental condition of rural finance and strengthening the market vigor.