Research On The Impact Of Shareholding Reform Of Rural Credit Cooperatives Upon Local Economic Development In China

Rural Credit Cooperatives(RCCs)have been playing a major role in the financial system in China’ s counties.After several rounds of experimental reform over the past three decades,RCCs have been undergoing a comprehensive property rights reform since the end of 2010,in which RCCs leave the cooperative path and are transformed into shareholding Rural Commercial Banks(RCBs).At present,China’s 14 th five-year plan emphasizes the development of county economy.The impact of the comprehensive shareholding reform of RCCs,orientated to serve the county and support agriculture,on the development of county economy is undoubtedly a key issue worthy of attention.Therefore,this paper aims to investigate how the comprehensive shareholding reform of RCCs may impact upon county economic development,systematically study and judge the effectiveness and shortcomings of the reform of RCCs,and explore the policy focus for the further reform of rural credit institutions,which has important theoretical value and practical significance for deepening the reform of RCCs,improving the organizational system of modern rural financial services,and strengthening financial services in Rural Revitalization.This paper follows the research logic from institutional structure to subject behavior,then to action mechanism,and then to economic performance.Firstly,on the basis of combing the reform process and relevant research literature of RCCs,this paper compares the system design norms or characteristics of different property rights systems and different forms of property rights organization of rural credit institutions.And then this paper uses the multi task principalagent model,combining with the specific characteristics of rural credit institutions,to construct the multi task model in the governance of rural credit institutions,so as to analyze the transformation of internal governance mechanism,incentive and corresponding behavior after the shareholding reform of RCCs.The results are as follows:(1)First,the property rights of RCCs are fictitious,and they are actually controlled by the government.Due to the lack of the owner’s adherence to the goal of commercial sustainable management,the government’s onesided attention and incentive to policy tasks lead to the agent’s opportunistic behavior,that is,the agent selects the policy tasks with strong incentive as its actual behavior goal according to the maximization of utility,which lead to the failure of commercial tasks.Moreover,the effort costs of policy tasks and commercial tasks are alternative,which further worsens the commercial sustainability of RCCs.(2)After the shareholding reform,the operating efficiency and commercial sustainability of RCBs will be greatly improved,but their efforts and achievements in supporting agriculture are uncertain.This is because the responsibilities,rights and interests of RCBs are unified with the shareholders after the reform,and their own governance mechanism has been improved,which helps to give full play to the functions of information advantage utilization,supervision,risk management and so on.However,after the reform,shareholder return has become an important issue affecting the bank’s business decision-making.And commercial financial institutions lack incentives to bear the responsibility of financial support for agriculture,and even deviate from support for agriculture under profit motivation.Based on the financial data and loan data of rural credit institutions,this paper also provides the characteristic facts of the corresponding behavior transformation after the shareholding reform of RCCs.Based on the research on transformation of the internal governance mechanism and incentive of RCCs in the shareholding reform,this paper firstly evaluates its economic and social effects from the impact of the new reform of RCCs on county economic growth.We use the financial license information of national financial institutions collected over the years to identify the reform process of RCCs across the country.With the data of 1549 counties from2011 to 2018,this paper applies DID model to conduct empirical research.The results show that the new reform of RCCs has a significant positive impact on county economic growth.The mechanism is that transforming RCCs into Rural Commercial Banks can effectively reduce fund outflows from counties with low fund supply,promote capital accumulation,and improve investment efficiency.Further analyses show evidence of regional heterogeneity in the impact of RCC reform on county economic growth.The results show that the reform of rural credit cooperatives has a significant and steady role in promoting county economic growth,which mainly promotes the county agricultural and industrial development and economic growth in the central and western regions,while in the eastern region,it leads to finance separation from agriculture and small enterprises and accelerates the outflow of county funds.Besides,it’s also found that the shareholding reform of RCCs helps to promote the overall convergence of county economy and the internal convergence of various regions.In addition to the research perspective of county economic growth,this paper also systematically investigates the impact of the comprehensive shareholding reform of RCCs on the income distribution of county residents,in order to further evaluate the economic and social effects of this reform.Using the data of 925 counties in China from 2013 to 2018,based on the DID and unconditional panel quantile regression model,the empirical study found that:(1)The reform of RCCs has a significant effect on increasing the incomes of both rural and urban residents in county areas,but on the whole,it has not significantly reduced the urban-rural income gap,which is still valid after being tested in many ways.(2)The mechanism analysis shows that the reform of RCCs will help to improve the level and efficiency of county financial services and promote the upgrading of county industrial structure to increase the income of county rural and urban residents.However,in the former channel,the income increasing effect on rural residents is stronger compared with urban residents,while in the latter channel the opposite is true.(3)The reform of RCCs intensifies the income gap among rural areas,but alleviates the income gap among county town areas.Finally,this paper further discusses how to design relevant policies to guide RCBs to better support local economic development,especially in the fields of agriculture and farmers.Based on the multi principal and multi task principal-agent model,this paper introduces the agency relationship between the government and the managers of RCBs to describe the main contents of the external governance of RCBs,to expand the single principal-agent relationship of the internal governance of RCBs,and then analyzes the incentive transformation of the managers of RCBs and discusses the effectiveness and feasible path of policies to guide rural financial institutions to serve agriculture and farmers.On this basis,the paper selects two external policies related to the operation of rural credit institutions-the establishment of agricultural credit guarantee system and the regulation of cross regional operation of RCBs to analyze their impact on the economic effect of the shareholding reform of RCCs,so as to evaluate the effectiveness of external incentive and restraint policies in guiding rural credit institutions to support agriculture and farmers.The empirical results are as follows:(1)The establishment of agricultural credit guarantee system not only helps to strengthen the inhibitory effect on county fund outflow and the promoting effect on county agricultural economy and total economic growth of the reform of RCCs,but also strengthens the promotion of the RCC reform on the increase of rural residents’ income,which helps to narrow the income gap between urban and rural areas in the county.(2)The behavior of RCBs,which were restructured from RCCs,to operate across districts to cities will aggravate the county fund outflow,inhibit the county agricultural economic growth and the income growth of rural residents,and expand the urbanrural income gap in the county.However,excluding the impact of cross regional operation of RCBs,the shareholding reform of RCCs itself has not effectively narrowed the income gap between urban and rural areas,which means that the regulation of cross regional operation can only limit the capital profit motive of RCBs to a certain extent.Based on this,the government should formulate supporting policies to better guide financial support for agriculture along the idea of giving priority to fiscal guidance and supplemented by regulatory constraints.The main contributions of this paper are as follows:(1)This study uses the multi task principal-agent model of single principal or multiple principals to bring the multi-incentive problem into a theoretical framework to analyzes the incentive mechanism and incentive balance of RCCs before and after the reform,and discusses the effectiveness of external policy incentives and constraints,which helps to understand the basic characteristics of incentive contract design and the effectiveness of governance before and after the reform,and provides theoretical thinking for the institutional innovation and regulatory policy adjustment of rural credit institutions.(2)Most of the existing studies generally discuss the effectiveness of the reform of RCCs since the pilot in 2003,and only a few of them discuss the effectiveness of the shareholding reform of RCCs,which are either limited to the choice of property rights in the early stage of the pilot reform,or only qualitative analysis.However,there is almost no quantitative analysis of the policy effect of the large-scale implementation of the shareholding reform of RCCs since 2010.This paper tries to fill this gap.(3)This paper studies the impact of the shareholding reform of RCCs on the development of county economy from the two perspectives of county economic growth and residents’ income distribution,expands the research dimension of the existing literature on the reform performance of RCCs,and enriches the relevant literature in the field of county economic development.(4)Different from selecting very few rural credit institutions or rural credit institutions in a province or city as the research object in the existing research,this paper uses a unique banking branch data which enable us to identify the process of RCC shareholding reform across the whole country and obtain more general findings.(5)The comprehensive shareholding reform of RCCs is one of the important measures of the market-oriented reform of financial institutions in China.The research based on this quasi-natural experiment also provides new evidence and stories for the literature in the fields of financial development and economic growth,financial development and income distribution.(6)The results of this paper provide empirical support for the ongoing shareholding reform of RCCs and have important policy implications for realizing the balanced and full development of county economy in the new stage in China.