The Research On Financial Reform And Development In Rural China

In the thirty years of reform and opening up associated with the industrialization and the urbanization process, the rural financial system has been re-established and gradually developed. The rural financial system in China has been playing a key role in supporting for agriculture and the township enterprises, easing liquidity constraints for rural residents, communicating rural areas and cities and so on. However, as a salient feature of the dual structure in urban and rural economy, the degree of rural financial development has been lagging behind its urban counterpart. This dissertation tries to answer the following questions:In the process of China’s industrialization, why the development of the rural financial system is lagging behind? Which factors undermine the effect of policies to promote the development of the rural financial system? How do we create a friendly environment for developing the rural financial system? Specifically, we focus on the impacts of three stylized facts. The first one is the relationship between agriculture and industry represented by the changes in the economic structures. The second one is the relationship between the urban system and the industrial system represented by measuring the compatibility between the urbanization and industrialization. The third one is the quality of economic development in rural areas represented by the rural income inequality. The impacts of these factors on the development of the rural financial system constitute the core of this research.The key point of this dissertation is because the rural interests have beed long seized by the cities in the industrialized oriented economic development strategy background and provided that such strategies and environment has not been totally changed, the effect of policies aimed at promoting the quality of rural financial system will be distorted and finally the policies will fail. From the approach point of view, this dissertation attempts to explore the impact of factors that create the evolutional forces and mechanisms for the rural financial reform and development.Firstly, we review the process of China’s rural financial reform compared with the global experiences. Then, under the background of the economic development strategies of industrialization, we study the impacts of economic structure changes on rural financial development by the perspective of resource endowment and the corresponding economic restructuring. By using the VAR models, the empirical results show that in a capital-lacking economy, the blind pursuit of enhancing the level of industrial development repressed the rural finance system while repressing the development of the rural financial system did have a positive impact on improving the level of industrialization. We also find that in an open economy the continuously improving level of openness improves significantly the rural financial system. Of particular importance is that most structural changes in the economy will indirectly affect the level of rural financial development through openness. The development of rural finance will also be benefited from upgrading the agricultural production structure to the high value-added products.Secondly, we study the impacts of the coordination between the industrialization and urbanization on rural financial reform and its development. The industrialization and urbanization are not necessarily coordinated and they may deviate from each other. Such deviation and non-coordination reflect many economic distortions as the result of the catch-up strategies. Essentially, the deviation and non-coordination will weaken the depth of the rural financial system through the mechanisms of capital accumulation, income distribution, and policy changes. Using panel data analysis we find that the more coordination between the industrialization and urbanization, the more agricultural credit will be invested. This will improve the operating efficiency of rural financial institutions and finally enhance the development level of the rural financial system.Thirdly, we study the relationship between the distribution of income within rural areas with the rural financial reform and its development. Theoretically, on one hand, the development of the financial system will affect the income distribution. But on the other hand, the distribution of income will affect the development of the financial system through various channels, such as savings, the quantities of investments, investment structure, infrastructure, public services, social relations or social capital, political institution-building and the middle-income trap. These channels will eventually strengthen or weaken the internal momentum of the financial system. Using the VAR model and macroeconomic time series data, we find that in the short term the rural financial development may be Granger causality on rural income distribution inequality, and in the long run there may be a two-way Granger causality between them.In short, compared to the urban financial system since the reform and opening up, the pace of development of the rural financial system is unusually slow. Based on the literature review and comparison of international experience, we think in order to achieve endogenous rural financial development, the friendly external and internal environment are needed.