Research On China’s Rural Credit Rationing Problem And Policy Suggestion

Three problems about countryside, agriculture and farmers is close attention by the party and the people since it has been proposed. In the18th National Congress of the Communist Party of China, President Hu Jintao stressed to promote the reform of the socialist economic system and to achieve integration of urban and rural economy, the problem of "countryside, agriculture and farmers" is a top priority in the work of the whole Party. We have to improve the level of agricultural science and technology applications and improve the traditional forms of agriculture, and it is the fundamental way to solve the issue. Domestic scholars, such as Zhuyan Qiang et (2004) believe that insufficient capital formation is the root cause of the three problems about countryside, agriculture and farmers. In order to completely solve the problem, we have to accelerate capital formation in agriculture. Although china have developed a multi-layered financial system which covers most areas in the countryside, but there is still some problems in rural credit, such as farmers could not get enough credit from banks and countryside has a big rural capital outflowAs early as1876, Adam Smith had noticed the phenomenon in credit market that borrowers couldn’t get loans at current interest rate even though they were willing to pay the rate. This phenomenon was defined as "Credit Rationing", and it was gotten explanations from aspects of availability of credit, factors of risks and interest rate, implicit credit contract, imperfect information, implementation of credit contract and legal system. Among them, incomplete information theory applied to the problem of credit rationing recognized by most scholars. Farmers access to credit from the formal financial institutions the highest proportion of46.8%, a minimum of20.96%; the degree of credit to meet the highest of52.45%, a minimum of only about15%.The highest proportion of township enterprises to obtain loans from formal financial institutions is50.37%, a minimum of28%; the degree of credit to meet the highest of62.8%and a minimum of27.9%. The paper mainly use of information economics theory to explain how the credit rationing appear in the rural credit market due to "adverse selection" and "moral hazard" effect. And we find in the model to provide collateral or security can effectively reduce the degree of asymmetric information, increasing the supply of credit. Further, combined with the actual situation of China’s rural economic development we find the underlying reasons which make the credit rationing phenomenon be so severe, are mainly lying in the disfunction of credit resources allocation led by the imperfectness of finance system, including monetary institutions’deviation of operational objectives caused by internal and external factors, the oligopoly market structure in Chinese banking industry, which further leads to the approximate monopoly in rural credit market, In addition, the lack of financial risks compensating, sharing and transferring mechanism, the imperfectness of financial infrastructures, and so on, further aggravate the extent and range of credit rationing in Chinese rural areas. The main creative contribution of this article lies in:First, the article which is on the base of "credit rationing" theory, using information economics and rural financial theory, analyzes china’s credit rationing problem. We analyze the problem from combination of microcosm and macrocosm, theory and data external experience.Second, the article applies some methods such as survey research and econometric models to conduct empirical test for the credit rationing phenomenon and rationing extent in Chinese rural areas.Third, the article tries to start from the internal of credit trade system, basing on the micro foundation of credit rationing----mainly the behavioral characteristics of financial institutions under imbalance information in credit market, to explain the credit rationing phenomenon in Chinese rural areas, which is different from that of previous most scholars who focused on macro-level to analyze the government constraint and systematic problems when they analyzed the problem of credit difficulties in Chinese rural areas.