Rural Finance in Poverty-stricken Areas in the People''s Republic of China: Balancing Government and Market (International Atomic Energy Agency Tecdoc)

211 Pages·2010·1.1 MB·English

by  Asian Development Bank

RURAL FINANCE
IN POVERTY-STRICKEN AREAS
IN THE PEOPLE’S REPUBLIC OF CHINA
BALANCING GOVERNMENT AND MARKET
Zhang Xuechun, Xu Zhong, Shen Minggao, and Cheng Enjiang
Ying Qian and Todd A. Manza
Editors
RURAL FINANCE
IN POVERTY-STRICKEN AREAS
IN THE PEOPLE’S REPUBLIC OF CHINA
BALANCING GOVERNMENT AND MARKET
Zhang Xuechun, Xu Zhong, Shen Minggao, and Cheng Enjiang
Ying Qian and Todd A. Manza
Editors
©2010 Asian Development Bank
All rights reserved. Published 2010.
Printed in the Philippines.
ISBN 978-971-561-892-2
Publica(cid:2)on Stock No. BKK090446
Cataloging-In-Publica(cid:2)on Data
Zhang Xuechun, et al.
Rural finance in poverty-stricken areas in the People’s Republic of China: balancing
government and market.
Mandaluyong City, Philippines: Asian Development Bank, 2010.
1. Rural finance. 2. People’s Republic of China. I. Asian Development Bank.
The views expressed in this book are those of the authors and do not necessarily reflect the views
and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments
they represent.
ADB does not guarantee the accuracy of the data included in this publica(cid:2)on and accepts no respon-
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ii
Contents
Preface vii
About the Authors viii
Foreword: Nurturing Local Financial Strength in Rural Areas ix
Abbreviations xiii
Introduction 1
Ensuring Access to Finance 1
Promo(cid:2)ng the Domes(cid:2)c Opening of Financial Markets 5
Part I. An Overview of Rural Finance
Chapter 1. Rural Financial Reform 17
History of Rural Finance in the People’s Republic of China 17
Main Issues of the Rural Financial System in the People’s Republic of China 30
Lessons from Rural Finance Reform 33

Chapter 2. Rural Economic Situation 37
General Economic Situa(cid:2)on 38
Industrial Structures 39
Agriculture Loans 39
Fiscal Posi(cid:2)on 39
Sources of Farmers’ Income Growth 40
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Chapter 3. Rural Financial Services for the Poor and for Rural Migrants 43
Local Ins(cid:2)tu(cid:2)onal Outlets 43
Agriculture and Poverty Reduc(cid:2)on Loans 45
Remi(cid:3)ances of Rural Migrants 56
Part II. Current Rural Financial Policy
Chapter 4. Capital Flows and Rural Finance 65
Interregional Capital Flows 66
Loans and Deposits 71
Chapter 5. Interest Rate Policy 75
Changes in Rural Deposits and Loans 76
Market Distor(cid:2)ons and Efficiency of Rural Financial Ins(cid:2)tu(cid:2)ons 77
Ins(cid:2)tu(cid:2)onal Response to Market Distor(cid:2)ons 81
Part III. Financial Models
Chapter 6. Cooperative Finance 87
Principles of Coopera(cid:2)ve Finance and Interna(cid:2)onal Experience 88
Lessons of Coopera(cid:2)ve Finance in the People’s Republic of China 89
Strengths of Rural Credit Coopera(cid:2)ve Reform Policies 93
Rural Credit Coopera(cid:2)ve Reform Policy Issues 95
Evalua(cid:2)on of Rural Credit Coopera(cid:2)ve Reform Policy 95
Chapter 7. Microfinance 101
Diversified Microfinance Development Model 102
Lessons of Microfinance 104
Development and Innova(cid:2)on of Microfinance in the People’s Republic of China 105
Interna(cid:2)onal Microfinance Donor Agencies 107
Reasons for the Slow Development of Microfinance 109
A New Phase of Microfinance Development 111
Chapter 8. Informal Finance 113
Informal Finance in the People’s Republic of China 114
Informal Finance in Poverty-Stricken Areas 115
Informal Financial Ins(cid:2)tu(cid:2)ons 116
Comparison of Formal and Informal Finance 116
Rural Finance Op(cid:2)ons in Poverty-Stricken Areas 117
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Part IV. Surveys, Pilot Studies, and Policy Recommendations
Chapter 9. Surveys and Pilot Projects 121
Poverty Reduc(cid:2)on Loans 121
Rural Remi(cid:3)ance 123
Coopera(cid:2)ve Finance 125
Microfinance 143
Informal Finance 148
Chapter 10. Policy Recommendations 151
General Policy Considera(cid:2)ons 151
Poverty Reduc(cid:2)on Loans 157
Rural Remi(cid:3)ance 159
Coopera(cid:2)ve Finance 161
Microfinance 168
Chapter 11. Opening the Rural Financial Market and Piloting New Rural Financial
Institutions 179
Important Issues in Opening the Rural Financial Market 180
Addi(cid:2)onal Requirements 183
Cost-Effec(cid:2)ve Approach 185
Appendix 187
List of Tables
A.1: Number of Banking Outlets, by Region, 2005 189
A.2: Credit Market Concentra(cid:2)on in Sample Coun(cid:2)es, 1999–2003 189
A.3: Rural Deposits in Sample Coun(cid:2)es, 1999–2003 190
A.4: Rural Loans in Sample Coun(cid:2)es, 1999–2003 191
A.5: Rural Credit Coopera(cid:2)ves’ Nonperforming Loans, Bad Debt, and
Losses in Sample Coun(cid:2)es, 1999–2003 192
A.6: Fiscal Funds for Poverty Allevia(cid:2)on in Sample Coun(cid:2)es, 1999–2003 192
A.7: Interest Collected in Sample Coun(cid:2)es by the Agricultural Bank
of China, 1999–2003 193
A.8: Agricultural Development Bank of China Nonperforming Loans
in Sample Coun(cid:2)es, 1999–2003 193
A.9: Agricultural Bank of China Loans Outstanding in Sample Coun(cid:2)es,
1999–2003 193
A.10: Agricultural Bank of China Loans in Sample Coun(cid:2)es, 1999–2003 194
A.11: Agricultural Bank of China’s Poverty Allevia(cid:2)on Loans in Sample
Coun(cid:2)es, 2001–2004 194
A.12: Ra(cid:2)o of Medium- and Long-Term Loans to Total Agricultural Bank
of China Loans in Sample Coun(cid:2)es, 1999–2003 195
A.13: Agricultural Bank of China Deposit–Loan Ra(cid:2)o in Sample Coun(cid:2)es,
1999–2003 195
v
A.14: Agricultural Bank of China Enterprise Loans in Sample Coun(cid:2)es,
1996–2003 196
A.15: County Revenues Surrendered and Subsidies, 2000–2004 197
A.16: Number of State-Owned Commercial Bank Outlets per County,
by Region, 2000–2004 197
A.17: People’s Bank of China Agriculture Loans per County, by Region,
2000–2004 197
A.18: Funds Deposited with Higher Financial Ins(cid:2)tu(cid:2)ons, by Region, 2004 198
A.19: Rural Migrant Workers’ Annual Remi(cid:3)ance per County, by Region,
2000–2004 198
A.20: Foreign Direct Investment per County, by Region, 2000–2004 198
A.21: Domes(cid:2)c Direct Investment per County, by Region, 2000–2004 199
A.22: Rural Deposits, 1989–2005 199
A.23: Amount and Composi(cid:2)on of Rural Loans, 1989–2005 200
A.24: Agricultural Bank of China Loans, 1989–2005 201
A.25: Rural Credit Coopera(cid:2)ve Loans, 1989–2005 202
A.26: Por(cid:6)olio Balance and Cumula(cid:2)ve Loans of the Agricultural Bank
of China and Rural Credit Coopera(cid:2)ves, 1989–2001 203
A.27: Rural Deposits and Loans, 1991–2001 204
A.28: Demand for Credit Among Sample Popula(cid:2)on 204
A.29: Fund Inflows in Sample Coun(cid:2)es, 2003 205
A.30: Rural Credit Coopera(cid:2)ve Deposits and Loans Outstanding in
Guizhou, 2000–2003 205
A.31: Agricultural Bank of China Deposits and Loans Outstanding in
Guizhou, 2000–2003 205
Notes 207
vi
Preface
The Asian Development Bank (ADB) is pleased to make this book on rural finance issues
in the People’s Republic of China (PRC) available to policy makers, financial ins(cid:2)tu(cid:2)ons,
and prac(cid:2)(cid:2)oners. The analysis contained in this volume grew out of ADB-financed techni-
cal assistance projects for rural and microfinance that focused on expanding sustainable
financial services to the rural poor in underdeveloped areas.
The book is a valuable contribu(cid:2)on toward a be(cid:3)er understanding of the issues in the PRC
rural finance market, par(cid:2)cularly the reasons for recent reform measures and key market
and ins(cid:2)tu(cid:2)onal changes. The book will hopefully promote further work and innova(cid:2)ve
approaches toward building a sound rural finance system that allows easy access for the
underserved financial segments of market services. There are indeed opportuni(cid:2)es for
synergy between government and par(cid:2)cipants in the rural financial market to join forces
for poverty reduc(cid:2)on.
The book highlights the need for a bo(cid:3)om-up approach in rural financial market develop-
ment to meet local demand and adapt to local financial risk profiles. It emphasizes that
effec(cid:2)ve supervision of rural financial market par(cid:2)cipants requires effec(cid:2)ve communica-
(cid:2)on between government and the market. The book also argues that opening the rural
financial market allows innova(cid:2)ve approaches and different types of ins(cid:2)tu(cid:2)ons to com-
pete, thereby ensuring be(cid:3)er services and higher efficiencies.
The contribu(cid:2)ons of authors, editors, and the staff of the Financial Sector, Public Manage-
ment, and Regional Coopera(cid:2)on Division as well as the Department of External Rela(cid:2)ons
were invaluable in producing this knowledge product and are acknowledged with gra(cid:2)tude.
Klaus Gerhaeusser
Director General
East Asia Department
Asian Development Bank
vii
About the Authors
Zhang Xuechun, PhD in Economics, Research Bureau, People’s Bank of China. Prior to
joining the People’s Bank of China, Zhang Xuechun worked for the Asian Development
Bank, the Interna(cid:2)onal Monetary Fund, the Federal Deposit Insurance Corpora(cid:2)on, and
the Federal Reserve Board in various posi(cid:2)ons. She has extensive research experience on
rural and microfinance issues.
Xu Zhong, PhD in Economics, Senior Research Fellow and Deputy Director General, Finan-
cial Market Department, People’s Bank of China. Xu Zhong has been engaged in rural and
microfinance policy making and research for more than 15 years.
Shen Minggao, PhD in Economics, Economist at Ci(cid:2)Bank, and adjunct professor at the
China Center for Economic Research, Peking University. Shen Minggao has a long-term
interest in rural finance research.
Cheng Enjiang, PhD in Economics, Professorial Fellow, Interna(cid:2)onal Poverty Research Cen-
ter in the People’s Republic of China. Cheng Enjiang is an adjunct professor at the Zhejiang
University, and has been involved in rural finance research for more than 15 years. He has
also worked as an interna(cid:2)onal consultant for various interna(cid:2)onal agencies.
viii
Foreword
Nurturing Local Financial Strength in Rural Areas
Exis(cid:2)ng finance theory and prac(cid:2)ce has demonstrated that local small and medium-sized
financial ins(cid:2)tu(cid:2)ons are the best financial system for small and medium-sized enterprises
and farming households. Government agencies in the People’s Republic of China (PRC)
have proposed policies that would relax market entry criteria and allow the crea(cid:2)on of
diversified rural financial ins(cid:2)tu(cid:2)ons, enhancing financial support for small and medium-
sized enterprises and farmers. These measures will help improve the PRC’s financial struc-
ture, promote be(cid:3)er rural financial services, enable financing of labor-intensive economic
ac(cid:2)vi(cid:2)es, and promote harmonious socioeconomic development.
The development of rural finance, in par(cid:2)cular, necessitates innova(cid:2)ons in percep(cid:2)on
and ins(cid:2)tu(cid:2)ons. For this reason, I greatly appreciate the effort of the authors of this book
to introduce interna(cid:2)onal experience, to examine the evolu(cid:2)on and relevant lessons of
rural finance in the PRC, and to provide valuable sugges(cid:2)ons for improvement. Developing
rural finance requires the par(cid:2)cipa(cid:2)on of local small and medium-sized banks, microcredit
companies, and coopera(cid:2)ve financial ins(cid:2)tu(cid:2)ons as well as the development of formal and
informal credit, guaranty mechanisms, and a system of investment and financing.
In recent years, the newly opened rural financial market has provided rural economic en(cid:2)-
(cid:2)es with diverse financing op(cid:2)ons and has introduced the concept of small-scale financial
ins(cid:2)tu(cid:2)ons. These ins(cid:2)tu(cid:2)ons include village banks, microcredit lending companies, and
credit shops. However, such small and localized ins(cid:2)tu(cid:2)ons differ from exis(cid:2)ng commer-
cial banks and demand innova(cid:2)ve supervision.
The key to developing a new rural financial en(cid:2)ty lies in nurturing localized rural finan-
cial services through a bo(cid:3)om-up approach, which creates the basis for a new rural
financial market.
Tradi(cid:2)onal rural financial ins(cid:2)tu(cid:2)ons, such as the Agricultural Bank of China and rural
credit coopera(cid:2)ves, are all local branches of larger financial ins(cid:2)tu(cid:2)ons. The authori(cid:2)es
or higher-level branches appoint senior management, set policy or commercial objec(cid:2)ves,
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