Study On The New Rural Construction And The Rural Financial Reform

Since reform and opening up, China's national economy has developed by leaps and bounds. However, the proportion of rural economy in the entire national economy has declined. The income gap between urban and rural residents is widening, the income of the farmers in the mid-and late 1990s has even declined absolutely. And the "three rural" issue has become a serious major problem in the economic development. Although the central government has introduced 7 "No. 1" documents to support the "three rural" development since the founding of the New China, But these "No. 1" documents only focus on a certain aspect, the "three rural" issue was only got local mitigation. The fifth plenary session of the Central Committee of the 16th CPC National Congress made the Strategic decision of building the new socialist countryside, and it became a starting point to comprehensively solve the "three rural" problem. The 2006 Central "No. 1" document, that's "Some of the views on promoting the construction of a new socialist countryside, raised by the CPC Central Committee and the State Council ", emphasized again: In the "11th Five-Year Plan" period we should comprehensively implement the scientific development concept, make overall planning for economic and social development between urban and rural, implement industry nurturing agriculture and cities supporting rural, practice "more giving, less taking, adequate releasing" approach, and promote the coordination of the rural economic construction, political construction, cultural construction and social construction with the requirements of "Production is developing, life is affluent, custom is civilized, visage is neat and management is democratic".The new rural construction will be to create a new era of rural economic growth and development.Empirical studies have shown that there is a long-term equilibrium relationship between the rural financial development and the rural economic growth. It can promote the rural economic growth when the rural financial development level is rising. And this is in line with the development of modern financial theory expectations. In this study, the author's idea is as follows: Putting the connotation of new rural construction and its investment demand as a reality starting point, putting the relationship between financial development and economic growth as a theory starting point, and then, studying the problem of the rural financial reform, and how the rural finance supports the new rural construction with capital. The main points and conclusions are as follows:(1) The purpose of the new rural construction is ultimately to resolve the investment and development issues in rural areas. "Production is developing, life is affluent, custom is civilized, visage is neat and management is democratic" is the overall objective of the new rural construction and the rural economic development. Economic growth is included in economic development, rural economic growth is the primary driving force of the rural development, and investing which further increases rural assets deposit is the key growth driving force. The two most important channels of investment are the government and the rural finance. The former mainly solves the supply of public goods. The latter helps the rural micro-business entities (farmers and enterprises) to pooling funds so that they can solve the shortage of inputs problem. Fiscal and finance must join forces to support the new rural construction.(2) Based on the review and comparison of the rural financial theory, the author considered "the incompletely competitive market theory" is more in line with China's actual conditions and has stronger practical significance. In the rural financial market, the market mechanism itself is a good mechanism, and competition is a process to discover information, reduce incomplete information and information asymmetry. But it may cause failure if relying solely on market mechanisms sometimes. So it's necessary for the government to control the financial markets indirectly, to provide a good enabling environment, to establish the market framework and to maintain the market order. It should play role in the marginal realm outside the competitive markets.(3) Sampling the macroeconomic data 1978～2005, the author uses econometric methods, such as cointegration test and Granger causality test, to make empirical study on the relations between China's rural finance and rural economic. The conclusions are: the variable sequence of rural GDP growth, rural deposits and rural credit is contigration, there is a long-term equilibrium relationship between the rural GDP growth and rural finance (rural deposits, Rural loans); But during the eight pairs of Granger causality test, 16 kinds of relationships, only the following four relationships overpass the test: the rural GDP growth rate is Granger cause of rural loans growth, income of the farmers is Granger cause of the rural deposit growth, rural deposit growth is Granger cause of rural consumption growth rate, rural deposit growth is Granger cause of rural investment growth.(4) Based on the historical analysis of rural financial system since the reform and opening up, the author thinks that the transition of rural financial system has several characteristics: Institutional adjustments shown repetitive; "Duality" was reflected on two different levels; Rural financial system transition was mainly supplied by the government, mandatory system transition suppressed induced system transition; Rural financial system transition was not in step with rural economic system transition. The evaluation of the rural financial system reform from rural economic development perspective is as follows: Before 2000, the reform of the rural financial system has remained in the policy pattern of the "agriculture nurturing industry"; Rural financial reform was lack of systemic vision, it was also lack coordination mechanisms between the regulators and financial institutions; Rural financial supply and demand was uncoordinated, and the supply could not meet the demand; The development of non-formal finance was always in the initial stage, it was unable to further expand the scale and its networks.(5) Based on the refection on the reform of rural financial system form "financial function viewpoint" perspective, the author deems that China's financial reform has long been a major financial institutions viewpoint in the past, its limitation is that it has been only focusing on the existing rural finance system reforms, but neglecting what the purpose of rural finance reform is and what kind of function should the rural finance system take on. If we are continuously in accordance with the guidance of financial institutions viewpoint, reform will come into a dead end. But if taking the way of financial function viewpoint, we can more clearly understand and grasp the inherent relationship between China's rural finance and economy, and their evolutionary trends as well. Depending on the knowledge above, we can make the rural financial system to better adapt to the external environment on changes of the functional requirements so as to promote development of the rural economy.(6) On the reform of rural credit cooperatives, the author makes two comparative studies, one is about the property rights system model—a comparison among "cooperation system", "shareholding system" and "joint-stock cooperative system"; the other is about the organization models——a comparison between the "branch" and the "modules". The conclusion is that will be clear as a credit cooperative joint-stock system reform of property rights as the main options, and in accordance with the general branch of the organization to establish a national model of vertical-type system of rural credit cooperatives. That is to establish the China Rural Commercial Bank—rural commercial banks—county rural commercial banks. And the reform of rural credit cooperatives and its mechanism improving should get a mutual coordination. Besides, reform of the credit cooperatives should be with the entire financial system in support of reconstruction.(7) On the reform of the China Agricultural Development Bank(CBAD), the author, through the analysis of its problems and challenges, deems that the CBAD should actively adjust its functions, improve and innovate its operation mechanism, including: perfecting cotton and oil acquisition financing; relaxing the CBAD's business scope and offering long-term loans as integrated rural development etc; adopting policies and operating business separate management system; innovating deposits mode as industry agreements; introducing a modern enterprise system, trying to operate with commercialization and marketization; carrying out internal reforms; establishing a fiscal compensation mechanism; clearing the CBAD's legislative authority and obligation to protect its standards, and procedures and legal operation.(8) On the reform of the China Agricultural Bank(CBA), that the historical background of the CBA from a agricultural supporting bank to a commercial bank decides its particularity of its reform objectives and modalities. Through a deep comparative analysis the two joint-stock reform programs of the CBA——the "spin-off' program and the "overall restructuring, optional for listing" program, the author thinks the latter is more in line with the CBA's development itself and rural finance reality. The CBA must emphasize business to rural areas, position in the county economy, and services to the "three rural" issues.(9) On the reform of the postal saving, Because of the People's Bank pushing the postal savings funds into the market at this stage, the postal saving has to find a way for its deposit. Therefore, it is an inevitable choice for the postal saving to set up the Postal Saving Bank(BPS). But there is a comprehensive controversy about the BPS's attributes. Currently we are only sure that the BPS should be different from other commercial banks. And it must be built in the light of corporate governance principles, those are "the three Associations are set up independently, the three rights are used separately, with effective control and coordinated development".(10) On the reform of the agricultural insurance, if agricultural insurance will play a important role in building a harmonious society, the government, insurance agents and farmers have to form a good interaction. In the agricultural insurance mode of choice, there should be a main policy-oriented agricultural insurance, with mutual insurance and commercial insurance as flanks. And it should take the government support with commercial operation. The measures of reform and development of the agricultural insurance are as follows: strengthening relevant legislation, introducing the "Agriculture Insurance Regulations" as soon as possible; making the fiscal policy supporting agricultural insurance to be a system; making a risk transfer and apportionment policy for the agricultural insurance, establishing a central-local financial supporting reinsurance system for the agricultural insurance; determining scientific insurance rates, and so on so force.(11)Through a comparative study between formal rural and informal rural finance, based on the survey data of Henan and Hubei provinces, the author find that although informal rural finance accounts for a large proportion in the rural financial market, and informal rural finance's lending rate is generally higher than that of the formal finance, however, informal finance's lending scale is cumulated repetitively, and the informal finance channels of borrowing funds are more invested in non-productive purposes, while the formal finance channels loanable funds generally in purposes of production. So, the informal rural finance is not as "importance" as the formal finance to the economic growth. The proposals in informal rural finance reform are as follows: We should create a licit system platform for informal rural finance, lead it into the orbit of the legal system, give it a fair status with the formal one, thereby reducing its costs in the process of dodging controls, and its damage by improper means to the social, legal and moral environment.(12) The rural financial innovation is stared in the face. Because there are seven extrusive contradictions between the current rural financial services and the new requirements form the construction of new countryside. We should accelerate rural agencies innovation, especially the small and medium financial institutions, which have comparative advantages in rural areas. A multi-level rural finance system with improved rural financial layout is necessary. Meanwhile, we must innovate financial tools to support the new rural construction and improve financial services price formation mechanism, so that it can meet the diversified financial service demand in rural area.