| Nowadays our new generation of governors are facing three major issuesin Chinese rural society, which are in terms of 'rural area', 'agriculture',and 'farmer'. Government has been working very hard to resolveproblems in those aspects. Undoubtedly the issue of rural finance hasnever been ignored by government, which is the main topic of this paper.However, rural finance in our country has been experiencing so manydifficulties in the last over twenty years due to the unsuccessful"Subsidized Credit Paradigm", which is often applied in the plannedeconomics. This paper will discuss the problems of "Subsidized CreditParadigm" in the financial practice and provide a resolution, which is"Rural Financial Systems Paradigm".Firstly, there is a comparison between the "Subsidized Credit Paradigm"and "Rural Financial Systems Paradigm". Then a brief introduction aboutrural finance history and the present situation in China will be presented,followed by the problems in our rural financial practice. Next part I willanalyze the "Rural Financial Systems Paradigm" by using the theory of" local knowledge", which aims to demonstrate why we should apply the"Rural Financial Systems Paradigm" in China. Finally I would like givesome suggestions about how to use this paradigm in practice.This paper is divided into five chapters:The first chapter is to compare the two different concept, SubsidizedCredit Paradigm and Rural Financial Systems Paradigm. The first one isbased on the economics theory of Keynes, the second one is based onnew institutional economics. The difference between the two paradigmlies on the reaction of government when they are facing the markerfailure in the rural finance, and whether they would correct it by using therural financial resources directly or they choose to create a efficient andcomplete financial markets to resolve the problems.The second chapter is a brief description about the development history ofrural finance in China and the existing rural financial system. This willprovide supporting evidence for the application of Rural FinancialSystems Paradigm in the next chapter. Basically there are three phases inour rural financial history and different players dominated the financialmarket in different time.The third chapter will firstly examine the Subsidized Credit Paradigm inour country, meanwhile demonstrate the important features of thisparadigm and present the existing problems in practice. The mainproblem in our rural financial markets is low efficiency. The operation ofrural financial institution, such as Agricultural Development Bank ofChina, Agricultural Bank of China, has very low efficiency and makesloss. This is mainly due to the application of Subsidized Credit Paradigmin our country. Government should be responsible for this problem sincethey have wrong understanding about the relationship between agricultureand the rural finance. I will analyze this issue in five different aspects soas to prove that the application of the Subsidized Credit Paradigm isunsuccessful in our country and we should consider to introduce a newparadigm.The fourth chapter will examine the 'new' paradigm -- Rural FinancialSystems Paradigm by exploiting the theory of local knowledge, alongwith the analysis of our specific situation in rural finance, which lead to aconclusion that we should adopt this paradigm. According to the localknowledge theory, there are so much "local knowledge" existing in therural financial markets, which means there are asymmetric information inthis markets. In order to resolve this problem, Rural Financial SystemsParadigm has more advantages because it aims to create a more efficient,complete rural financial markets.The last chapter is some suggestions about how to utilize the RuralFinancial Systems Paradigm in practice. Basically, the old rural financialsystem which is run by the government should be replaced by a newmarket-oriented financial system, which brings more efficiency, morecompetition in the system.The main contribution of this paper is the int... |
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