On The Operating Mechanism Of Policy Guarantee In China’s Rural Land Financial System

In recent years, with the development of urbanization and rural economy, agricultural production mode is gradually changing from household management to scale management. Thus, it is of great importance to find a suitable farmland financial system. There are many limitations on the financing demand of borrowers of the current financial system. Local government made experiments on using policy guarantee measures to promote farmland management right mortgage loans. Since the year 2015, farmland policy loan has been regarded as an effective measure to resolve the problem of financing. There’s seldom research on concrete policy guarantee effect system. This paper focus on the policy guarantee mechanism under the constraint of particular farmland financial system in China. Thus, this paper is of realistic and theoretical significance.The theoretical basis of this paper is financing ability theory. The core of the theory is that guarantee contract could effect incentive compatibility of borrowers and participation constraint of lenders to improve financing ability of borrowers. The financing ability can be measured by minimum guarantee demand when the agreement is reached. The theoretical analysis of his paper is based on the minimum guarantee decision model. The realistic basis of this paper is the particular farmland financial system in China. Policy guarantee mechanism faces three constraints which are guarantee value, transaction cost and government intervention constraint.Then, this paper analyzed the credit increasing mechanism and risk sharing mechanism of policy guarantee in farmland financial system in China. Theoretically, based on the "financial institution-firm" Dual Sector Frame, the author found a "financial institution-firm-government" Three Sector Frame by introducing policy guarantee institution. Meanwhile, concluding from the realistic basis, the author introduced postulated conditions such as transaction cost etc. Empirically, case of Zaozhuang in Shandong Province was analyzed and tested in order to verify the theoretical analysis. The concrete contents are as follows.The first part is the analysis on credit increasing mechanism of policy guarantee. This mechanism is that policy guarantee institution could enhance the financing ability of borrowers by increasing the guarantee value of borrowers directly and decreasing the guarantee disposal cost allocation of lenders. The research findings is that policy guarantee could decrease participation constraint of lenders to enhance the financing ability of borrowers. The higher the guarantee disposal cost is, the better the policy guarantee’s credit increasing effect is and the lower the premium accepted by borrower is.The second part is risk sharing mechanism of policy guarantee. This mechanism is that policy guarantee institution could enhance the financing ability of borrowers by sharing the risk of project failure and guarantee disposal between borrowers and lenders. The research findings is that policy guarantee could increase lenders’income when the project is failed in order to decrease the risk allocation of them. Meanwhile, the main risk allocation of borrowers and policy guarantee institutions are higher compared with the situation without guarantee contract. The management objectives of policy guarantee institutions also influence this mechanism.The third part is case of farmland financial experiment in Zaozhuang. This case is a typical one on using policy guarantee measures to promote farmland management right mortgage loans. The case study discovered that policy guarantee measures could increase the supply of farmland mortgage loans. The financing ability of borrowers who receive policy guarantee is enhanced. The activeness of lenders is increased because of the decrease of risk sharing. The result of empirical test which uses Logit Test and the data of 230 rural cooperatives who apply for policy guarantee supported the result of the theoretical analysis.The conclusions and policy suggestion as follow. Firstly, it is of necessity for the policy guarantee mechanism to exist and develop. Secondly, policy guarantee system an influence policy target in many ways which should be considered as a whole. Thirdly, the management target of policy guarantee institution is important for the realization of policy target. On the basis of the above conclusions, we put forward three suggestions including encouraging usage of policy guarantee, determining the risk sharing proportion of policy guarantee and designing management target of policy guarantee institution reasonably.This paper found a innovative "financial institution-firm-government" Three Sector Frame. Considering the condition of China, the credit increasing mechanism and risk sharing mechanism were discussed. Thus, it is helpful to understand the validity and effect mechanism of policy guarantee. So as to offer references to optimizing agricultural support policies.The limitations of this paper are as follows. The analysis objects are mainly from policy guarantee activities after the year 1984 when farmland is of nation and collective ownership. Empirical test only uses the case and data of Zaozhuang City. There’s little information from other regions to verify the result. The forthcoming research will further discuss the above problems.