Informal Finance And Urban-rural Income Gap In China

Since the reform and opening up, China has developed at an amazing speed, whichhas become the focus of the world. However, as a developing country which the ruralpopulation accounts for the majority, the agriculture, the rural and the famers, as the“three rural issues” are the most fundamental obstacles for China to develop theeconomy and build the harmonious society. Famers’ continuous low income and thewidding urban-rural income gap have become important causes of social unrest, whichhave always been the key issues for the government and all the economic scholars tostudy.Informal finance has palyed a pivotal role in rural economic development, andgreatly ease the problem of lack of funds, urban-rural income gap’s continuousincreasing. So this paper focuses on the development of informal finance affectsurban-rural income gap.The main conculutions:①The informal finance’s development of China becomesmore and more prosperous, but there are many problems in the development process.Development of informal finance are blindness, speculative and strong profit-driven.②W ith economic development, urban-rural income gap in China has not beenalleviated. From the nationwide side, the overall trend of urban-rural gap in Chinacontinues to expand. Urban-rural income gap has a clear regional differences, andwesten is more than the central and eastern.③Development of informal finance inChina can help to narrow urban-rural income gap. In the empirical results, thecoefficient between development of informal finance and urban-rural income gap issignificantly negative; in theoretical analysis, there are three ways for development ofinformal finance to narrow urban-rural income gap.④U rban-rural income gap has amemory, in other words, there is a expanding trend in urban-rural income gap. Becausethe Mattew effection in accumulation of wealth, the poorer the poor, the richer the rich,which leads urban-rural income gap to continuously expand.Policy measures:①Face upto the development of informal finance. Cancel thesuppression of informal financial activities in rural economic area, which are good forfamers and small enterprises to finance, create favorable conditions for informal financeto develop, protect the legitimate part of informal finance as well as inhibiting theillegal part.②Regulate the development of informal finance. Promote the development of informal finance, which should be strictly regulated at the same time. Developeffective and comprehensive laws and regulations, create innovative financial regulatorysystem, and establish an effective monitoring mechanism.③Speed up rural formalfinancial to reform, which provides adequate financial services for rural economy andsociety and also forms competition and complementarity between formal finance andinformal finance. Improve the variety of rural formal financial services throughfinancial innovation, broaden the field of financial services, increase support for rural,and promote the liberalization of interest rate gradually.