On China Rural Financial Institution Reform

1. Characteristic of China Rural Financial InstitutionSince the fifties of the 20 th centruy, Centralized economy gradually had been set up in China. Rural financial institution in China gradually began was established since First National Rural Finance Congress of China People Bank in may 1951.Be viewed from the foundation of property right form, China rural financial institution is composed by "state finance" and "cooperative finance", i. e. China Agricultural Bank and Rural Credit Cooperative. But because government strictly control for their operation, "cooperative finance" already became "state finance in reality". Government controled their operation by "Centralized deposit and loan". So development of rural finance was suppressed, and its function was limited, its vitality was insufficient.China Agricultural Bank had experienced "three times organized and three times dissolved". It had been resumed again in 1979. Owing to the reform measurement of "transfer power and give interests to a lower level from government", under the state financial centralized frame, decide right for primary rural financial unit, was expanded. Primary unit had only operate right but no property right, they were short of mechanism of self— discipline. "Individual Reason" out of accord with "Group Reason". So state and cooperative financial resources became to the object of "Seeking rent" by lender,borrower and government official. As a result of this mechanism, it formed more and more "dull—loan"—above thousands hundred million RMB Yuan.Owing to primary unit was lack of mechanism of discipline of hard andfast, their response were not sensitive to the financial indirect adjust and control of Central Bank. Therefore, Central Bank had to use formerly direct adjust and control means again, i. e credit amount quota. It brought about so — called vicious circle of "lossen the grip —in confusion —inflation —tighten —stagnate".Although China Agricultural Bank and Rural Credit Cooperative tried to introduce scientific manage experience of the west bank, such as the Ratio manage of Assets and Liabilities, the Risk manage of credit Assets, Managing capital Adequacy and other method of managing and supervise. But it was difficult Owing to "precipitate of Institutionness" that the primary unit maintain a self—balance of the operating funds between income and expenditure. Thus, the effect of the effective managing methods in the west bank was discounted in the state financial centralized frame.Under the state financial centralized systems, development of financial systems depended on the arrangement of government, and the financial systems did not possess function of the self — development, and it was lack of mechanism of inducement of supply and demend of market. Governmental arrangement emerged defect of institutionness owing to undergo disturbing of "vested interests". This led to China rural financial systems behind development of rural market economy, and losed more opportunity of rural economy development.2. The Contradiction between Rural financial systems and Rural Market E-conomy DevelopmentIn China, rural non —state ownership economy has already held dominant position, but non —state ownership finance had a little part in formal rural financial systems. Formulation of the state ownership financial policy was mainly directed at China Agricultaral Bank and Rural Cedit Cooperative of formal rural financial systems, and had "policy vacuum" at non—state financial part, lack policy of fostering encouraging and binding rule. This policy led to lose a chance of "rural financial institution innovations".The state ownership rural financial unit, under Contract Systems, turned up a phenomenon of "undertake profit but not undertake losses". It was a short —term operating action, "borrow state's chicken, produce private eggs", "dull loan" was more and more became a "time bomb" lied hid-den in the state financial systems.Though the government had many managing methods, always was relaxed rule by "rational individual". The operater of finance always play skill of accounts.Accompning "transfer power and give interests", credit funds became small and fragmentary. Average loan balance of every unit of China Agricultural Bank was 0.157 hundred million RMB Yuan (1992), Rural Credit Cooperative was 0. 0455 hundred million RMB Yuan (1992). It was difficult to support development of scale economy. 3. Reform strategy in China Rural Financial InstitutionChina economy reform was a self — revolution. So it was very difficult. It had a lot of difficulty of solution that Mentralized Economy make a detour and change form to Market Economy.Nowadays ,the GNP of non—state ownership economy held above 60% in total GNP. We may carry out strategy of "two legs walk": reform formerly centralized financial part and develop new non—state ownership financial part at the same time. This may be called the way of "duality push" market development. By means of development of non — state ownership financial systems to push reform of state ownership financial systems , ultima tly realize the goal of Market Finance.At the same time, It should be adopt that "dual means of adjust and control,i. e direct and indirect means of adjust and control, gradually transition from dual means to pure means.This ask government to adopt the policy of encourage and help to non— state ownership finance parts, and put strictly manage in to practice to non —state ownership finance part.Of course, a part of non—state ownership finance may come from non — state ownership economy, but the most of non-state finance may come from cracking and rebuilding in state ownership financial systems. But the direction of reform and development will be non—state ownership and Market Finance.