Rural Financial Development In Transition Research

The empirical research indicates that there is a long-term equilibrium between the conditions of rural finance development and rural economic growth in China. A high level of rural finance development has positive effect to the rural economic growth, which is consistent with the anticipation of the modern financial development theory. However, the conditions of rural finance development fail to come up with the steps of rural economic growth, which means that the conditions of rural finance development is obviously not endogenous from the rural economic growth. Actually, rural finance is under rigid regulation from the government. In the economic transition, in order to ensure enough financial resource to State-owned ecnomy, the government draws financial resource out of rural areas through rural finance regulation.The regulation on rural finance leads to the apparent "Duality" between Chinese urban and rural areas, that is, the rural finance development lags behind that of the urban, which will undoubtedly lead to a notable economic consequence according to the reasoning of modern financial development theory. The empirical research indicates that the comparative lag of Chinese rural financial development contributes to the increasing gap between urban income and rural income.Some criteria showing the level of finance development, such as finance interrelation rate (FIR) and so forth, will mislead our judgment about conditions of rural finance development, if we do not take the level of urban finance development as the frame of reference, since these criteria often perform well when used to assess the level of rural finance development. As a matter of fact, in order to draw a general and precise evaluation of the conditions of rural finance development, we need macroeconomics as well as microeconomics views, let alone the inherent flaws of these criteria.Under the microeconomics views, we do not have to go too far to reveal that there are two problems existing in conditions of rural finance development: first, farmers are up against tight credit constraint in consumption and investment; second, the township-village enterprises (TVEs) have been disturbed by the inadequate financial support since 1990's. It is remarkable that, on the one hand, the inadequate financial support that TVEs receive is the result of the regulation on rural finance, while on the other hand, it exposes the inherent defects of state-owned financial system, because the state-owned financial system imposes "softconstraint" on the credit to TVEs, which induces eventually TVEs to abuse the credit. The government has to reduce the amount of financial support to TVEs in order to elude the risk resulting from the credit abuse.The nature of the regulation imposed on rural finance is the government-designed segmentation and transfer of the rural economy surplus, in the form of financial surplus. The segmentation and transfer was the cause of the capital constraint on rural economics development, with the depletion of the vigor of the household contract responsibility system and the rise of capital density of TVEs, in about 1985-1990. Then the un-equilibrium of rural financial system came into being, and, as the response, rural informal finance emerged. Rural informal finance emerging is an induced innovation of institution, meanwhile, which also is a game among the central government, district governments and rural informal finance supply-demand sections.Under the regulation on rural finance, the normal effects of rural financial system are distorted and the function of effectively allocating economic resource is restricted, which is the crux that for what reason the long-time rural financial reform fails to obtain the expected merit. The reform does not develop the concrete financial formation such as rules, systems to exert its regular function; instead, it simply tries mending the existing inherent flaws of the financial mechanism.For the recent years, the "three -dimensional -rural- issues" has been serious day by day, and the rural economy has bee...