The Analysis Of The Process Of Rural Financial Marketization

It has been agreed that China's Rural Finance delays thedevelopment of Rural Economy. However, there is no deep research onmarketization of China's Rural Financial Market in most of the analysis.In fact, the extent of the financial marketization is closely related to thenational economy model. In other words, the national economy modellimits the extent of the financial marketization. And it will have profoundeffects on investment mechanism, industrial structure movement,economic growth, etc.In economic transition, China's rural finance is in the process ofmarketization and is facing the problem of how to speed the process ofmarketization. The nature of financial marketization is the transformationfrom financial restraint to financial deepening. And the contents includethe marketizations of interest rate, market entry, business operating,capital movement, etc.This paper interprets the performance process of resource allocationunder market-based mechanism of the inherent factors of thetransformation from financial restraint to financial deepening as Rural marketization. And through the analysis of the process of rural financialmarketization, it will help to analyze the problems in rural finance inChina to certain extent.With respect to the interest rate, market entry, business operation,capital movements and other issues on rural individual finance in ruralfinance marketization progress, this article discuss the disequilibriumprogress phenomena propelled by inherent factors in China's ruralfinance marketization. In the last 20 years, China's rural financemarketization showed that theoretical disequilibrium exists in themarketization progress of inherent factors, i.e. interest rate, market entry,business operation, capital movements etc. Under current China's ruralinstitution arrangement, finance institutes (mainly Rural CreditCooperatives) perform reform towards commercial directions, theseinstitutes have higher marketization in business operating. Barriersagainst capital movements between urban and rural are lifted. Comparedto which, in general, higher government regulation exists in interest andmarket entry regimes, e.g. limited interest rate float, high financialinstitute market entry level etc. Overall, in rural finance, themarketization progresses in interest rate and market entry regimes lagbehind the progresses with business operating and capital movementregimes, which inhibits the function of rural finance. This paper interpretsthis situation as the structural operation reflection of disequilibrium in the progress of inherent factors in rural finance.The existing rural finance institute arrangements inducedisequilibrium in marketization, which set the capital provision in ruralfinancial institutes and supply in the rural finance markets. In one aspect,a backward bended supply curve for loan emerged after rural financeinstitutes operated under commercial mode. The supply curve givesinterpretation that a maximum loan amount should be set against everyborrower, bank loan would not exceed this amount even when interestrate goes up, assuming borrower could not return the amount whenexceeding this maximum amount. Under this situation, because of thedisadvantages of rural individual entities in organization, capital andoperating revenue, the loans to individual rural entities are relatively toosmall to satisfy their finance requirements. In the other aspect, the financeinstitutes described above are the main supplier in rural finance marketbecause of the strict market entry regulation. The combination of twoaspects induce the issue that the whole rural finance market is reluctant togive loan to individual rural entity, which cause the movement of ruralcapital to urban and bi-level rural interest rate arrangement issues. Thisarticle considers, theoretically, that with the aim to improve thedisequilibrium in rural finance marketization, the marketizationprogresses of different inherent factors need to be adjusted; interest ratemarketization and market entry marketization progress need to be speeded up, more finance institutes, i.e. cooperative finance institutes,need to be allowed into the rural finance market, interest rate regulationsneed to be relaxed. These methods can, to some extent, expand the legalfinance loan supply, limit unregulated finance scale, and ease thedifficulties of borrowing and bi-level interest rate issue. This articledescribes the characteristics of inherent factors of rural finance underequilibrium progress, and depicts the effects of the progress throughgraphics interpretation.This paper will analyze the main characteristics of thedisequilibrium. Based on that, it will analyze the transaction cost forfarmers due to disequilibrium. Disequilibrium will cause three differenttypes of transation costs. The transaction costs for farmers depend on thedifficulties of getting the financial support from the formal financialinstitutions and the non-formal financial institutions and also differentsystem arrangements.