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The structure and reform of rural finance in China

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  • Pei Guo
  • Xiangping Jia

Abstract

Purpose – Historically, China's political attempts to provide access to rural credit has met with mixed results and an institutional structure that often strays from intended policy goals. Unlike Robin Hood of English lore, the emergence of financial institutions in China appears to have robbed from the poor to lend to the rich, with actions that severely depleted the lending resources required for rural development. Historically, there has been a close correspondence between financial depression and the many policy-driven financial institutions that dominated the rural financial system in China. More recently, ongoing reforms are dedicated towards a gradual liberalization within the system. Therefore, the purpose of this paper is to rethink the structure of rural finance in China, reviewing the current reform and putting forward the policy implications. Design/methodology/approach – The paper explores the context of agricultural transition and political process as defined by the various interlinkages across the Chinese rural financial system. Findings – The paper finds that there has been negligible progress in the evolution of the rural financial market in China. The policy-led financial institutions ended up as merely a disbursement window and a costly drain on state budget. Institutional changes were locked in by patching up the existing institutions. The ongoing reforms projected by policymakers promote competition among different institutional lenders and thus potentially improve the financial services in rural areas. Originality/value – This paper analyzes the new-round reform of rural finance in China and brings forward the future direction of rural finance in China.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal China Agricultural Economic Review.

Volume (Year): 1 (2009)
Issue (Month): 2 (May)
Pages: 212-226

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Handle: RePEc:eme:caerpp:v:1:y:2009:i:2:p:212-226

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Keywords: China; Credit; Loans; Rural economies;

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References

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  1. Nugent, Jeffrey B., 1993. "Between state, markets and households: A neoinstitutional analysis of local organizations and institutions," World Development, Elsevier, vol. 21(4), pages 623-632, April.
  2. Dewatripont, Mathias & Roland, Gérard, 1991. "The Virtues of Gradualism and Legitimacy in the Transition to a Market Economy," CEPR Discussion Papers 538, C.E.P.R. Discussion Papers.
  3. Besley, Timothy, 1994. "How Do Market Failures Justify Interventions in Rural Credit Markets?," World Bank Research Observer, World Bank Group, vol. 9(1), pages 27-47, January.
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  6. Hoff, Karla & Stiglitz, Joseph E, 1990. "Imperfect Information and Rural Credit Markets--Puzzles and Policy Perspectives," World Bank Economic Review, World Bank Group, vol. 4(3), pages 235-50, September.
  7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  8. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472 Elsevier.
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  10. Braverman, Avishay & Guasch, J. Luis, 1986. "Rural credit markets and institutions in developing countries: Lessons for policy analysis from practice and modern theory," World Development, Elsevier, vol. 14(10-11), pages 1253-1267.
  11. Braverman, Avishay & Guasch, J. Luis, 1989. "Rural credit in developing countries," Policy Research Working Paper Series 219, The World Bank.
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Cited by:
  1. Turvey, Calum G. & Kong, Rong, 2010. "Informal lending amongst friends and relatives: Can microcredit compete in rural China?," China Economic Review, Elsevier, vol. 21(4), pages 544-556, December.

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