Finance in Rural China

162 Pages·2023·1.891 MB·English

by  Xingyuan Feng, Christer Ljungwall, Guangwen He, Tongquan Sun

FINANCE IN RURAL CHINA
This book offers insights into the scholarly debates on formal and informal finance in rural China and fills a
gap in the existing literature.
The book provides an overview of the overall development of rural finance in China and explains the
necessity of embarking on the pathway toward rural financial pluralization through the “Local Knowledge
Paradigm”. The authors also analyze formal and informal financial development and inclusive finance (including
digital inclusive finance) in rural China in various dimensions.
This book aids the understanding of the structure of the rural financial system and the operations of rural
financial service providers in China. It will be a useful reference for those researching and interested in rural
economy and rural finance.
Xingyuan Feng is Research Fellow of the Rural Development Institute of the Chinese Academy of Social
Sciences (CASS), Deputy Secretary-General of the Center of Small and Medium Scale Banking Institutions
of CASS, and Professor at the University of CASS. He received his PhD in economics from the University
of Witten/Herdecke, Germany. Xingyuan’s main research fields include the Australian School of Economics,
Freiburg School, Public Choice, constitutional economics, new institutional economics, evolutionary
economics, private sector development, government finance, banking and finance, SME finance, rural finance,
as well as local and rural governance.
Guangwen He is Professor of the Department of Finance and Director of the Center for Rural Finance &
Microfinance Research at China Agricultural University. He focuses on rural finance, cooperative finance,
microfinance & inclusive finance, financial demand & supply of farm households & MSEs and institutional &
business innovation of small & medium financial institutions. Guangwen has been very active in field surveys.
He was Visiting Professor at Duisburg University, Germany and Visiting Researcher at Norinchukin Bank
Research Institute, Japan. He has also provided his expertise in microfinance and rural finance projects of the
World Bank, ADB, IFAD, KFW etc., in China.
Tongquan Sun is Research Fellow and Director of the Rural Finance Research Office of the Rural Development
Institute (RDI) of the Chinese Academy of Social Sciences (CASS), Professor at the University of CASS and
Secretary General of the Rural Development Society of China. He received his bachelor’s and master’s degree
from the University of International Business and Economics (UIBE) in economics and law, respectively, and PhD
from the Post-graduate School of CASS in Management. He was a visiting scholar at Duke University’s Sanford
School of Public Policy in the USA. He is a recipient of the Prize for Rural Development Research in China. He
has provided consultancies to the government of China, some international development organizations, such as
the World Bank, UNDP, IFAD, ILO, United Nations Resident Coordinator’s Office in China and international
and national NGOs. His main research interests are microfinance, financial inclusion, rural financial cooperatives,
credit guarantee and poverty reduction, etc.
Christer Ljungwall is an economist specializing in international trade, knowledge production and innovation.
He is Associate Professor in economics at Gothenburg University, Sweden. He has held several positions
over the years, including guest Professor at PKU-HSBC Business School in China; Science Counselor
at the Embassy of Sweden in China; Associate Professor at Copenhagen Business School, Denmark;
Sr. Economist with the Asian Development Bank; and Research-fellow at Peking University, China. He is
the author of numerous academic articles in economics, four books, and more than one hundred reports. His
current research work focuses on international trade, knowledge production and innovation and geoeconomics.
He is an advisor to governments and businesses and a frequently invited speaker on issues pertaining to Asian
economic development and innovation. Dr. Ljungwall received his PhD in economics from Gothenburg
University in 2003.

FINANCE IN RURAL CHINA
Xingyuan Feng, Guangwen He, Tongquan Sun
and Christer Ljungwall
Designed cover image: © Getty Images
First published 2023
by Routledge
4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
605 Third Avenue, New York, NY 10158
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2023 Xingyuan Feng, Guangwen He, Tongquan Sun and Christer Ljungwall
The right of Xingyuan Feng, Guangwen He, Tongquan Sun and Christer Ljungwall to be
identified as authors of this work has been asserted in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form
or by any electronic, mechanical, or other means, now known or hereafter invented, including
photocopying and recording, or in any information storage or retrieval system, without
permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or registered trademarks, and
are used only for identification and explanation without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Feng, Xingyuan, 1965– author. | He, Guangwen, author. | Sun, Tongquan, author. |
Ljungwall, Christer, author.
Title: Finance in rural China / Xingyuan Feng, Guangwen He, Tongquan Sun and Christer
Ljungwall.
Description: Abingdon, Oxon ; New York, NY : Routledge, 2023. | Includes bibliographical
references and index.
Identifiers: LCCN 2022042184 | ISBN 9781138955592 (hbk) | ISBN 9781032439914 (pbk) |
ISBN 9781003369776 (ebk)
Subjects: LCSH: Finance—China. | Rural development—China. | Economic
development—China.
Classification: LCC HG187.C6 F46 2023 | DDC 332.0951—dc23/eng/20221209
LC record available at https://lccn.loc.gov/2022042184
ISBN: 978-1-138-95559-2 (hbk)
ISBN: 978-1-032-43991-4 (pbk)
ISBN: 978-1-003-36977-6 (ebk)
DOI: 10.4324/9781003369776
Typeset in Bembo
by Apex CoVantage, LLC
CONTENTS
List of Figures x
List of Tables xi
Preface xiii
List of Contributors xx
1 Towards a Competitive and Inclusive Financial Market in Rural China:
A Theory-driven Approach 1
Xingyuan Feng, Christer Ljungwall and Horst Löchel
1. Introduction 1
2. Existing Rural Finance Paradigms 2
2.1 The Subsidized Credit Paradigm 2
2.2 The Rural Financial Systems Paradigm 3
2.3 Incomplete Market Paradigm 4
3. The Local Knowledge Paradigm as a New Rural Finance Paradigm 4
4. The Structure of China’s Rural Financial System 5
5. Demands for Rural Financial Services 7
5.1 Structure and Diversity of Demand 7
5.2 Meeting the Financing Demand of Farm Households 8
5.3 Meeting the Financing Demand of SMEs in Rural Areas 11
6. Development of Rural Formal, Semi-formal and Informal Finance 12
6.1 Development of Agricultural Bank of China 12
6.2 Development of Rural Credit Cooperatives 13
6.3 Postal Savings Bank and Policy-Oriented Banks 14
6.4 Development of New Financial Institutions 15
6.5 Development of Informal and Semi-formal Finance 16
7. Improving Financial Market Mechanisms 17
8. Concluding Remarks 19
References 19
vi Contents
2 70 Years’ Evolution of the Rural Financial System of the People’s
Republic of China 22
Tongquan Sun, Xingyuan Feng and Chong Dong
1. The Establishment of Rural Financial System and the Formation of State
Banking Institutions 23
1.1 Strategy and Objectives 23
1.2 Progress 23
1.3 Achievements and Deficiencies 24
2. The Establishment of a Specialized Banking System and the Initial
Formation of a Rural Financial Market 25
2.1 Reform Strategy and Objectives 25
2.2 Main Reforms and Implementations 25
2.3 Achievements and Deficiencies 26
3. The Formation of Rural Financial System in Which Different-type
Institutions Working Together 27
3.1 Reform Strategy and Objectives 27
3.2 Main Reform Contents and Implementations 28
3.3 Achievements and Deficiencies 30
4. The Further Open-up of the Rural Financial Market and the Formation of a
Modern Rural Financial System 31
4.1 Reform Strategy and Objectives 31
4.2 Main Reform Contents and Implementations 32
4.3 Achievements and Deficiencies 34
5. Construction of a Rural Inclusive Financial System 35
5.1 Reform Strategy and Objectives 35
5.2 Main Reform Contents and Implementations 36
5.3 Achievements and Deficiencies 38
6. Outlook of the Reform and Development of the Chinese Rural Financial
System 39
6.1 Continue to Adopt the Principle and Direction of Marketization
and Market Opening to Promote the Reform of the Rural Financial
System 39
6.2 Continue to Construct Rural Financial System Suitable for Serving the
“Agriculture, Rural Areas and Farmers” 39
6.3 Further Strengthen the Construction of Rural Inclusive Financial
System 40
6.4 Accelerate to Complete Rural Financial Legislation 41
References 41
3 Farm Households’ Demand for and Access to Loans in Rural China 42
Guangwen He, Jing He and Pei Guo
1. The Problem Statements 42
2. The Source of Data and the Basic Situation of the Sample Farmers 44
2.1 Data Source and Sample Description 44
2.2 Farmers’ Production and Operation and Income Characteristics 44
3. Evolution of Farmers’ Credit Demand and Credit Accessibility 46
Contents vii
3.1 Farmers’ Credit Demand Remains Strong and Formal Credit
Satisfaction Rate is Still Low 46
3.2 Informal Credit is Still the Main Channel for Farmers to Meet their
Credit Demands 47
3.3 The Degree of Formal Financial Satisfaction of Farmers’ Productive
Credit Demands Has Increased 48
3.4 Collateral and Guarantee Are Still the Main Ways for Farmers to
Obtain Formal Credit 49
3.5 The Degree of Self-exclusion of Financial Services for Farmers is Still
High 49
4. The Hierarchical and Structural Characteristics of Farmers’ Credit
Demand 50
4.1 Demands of Farmers with Different Production and Operation Modes
Are Still Relatively Strong 50
4.2 All Types of Farmers’ Borrowing Still Rely Heavily on Informal
Financial Channels 52
4.3 Farmers at All Levels of Income Have Relatively High Credit
Demand 52
4.4 The Credit Demand of Small-scale Farmers Remains Relatively
Strong 55
5. Countermeasures for Deepening Credit Services for Farmers 56
References 58
4 Ownership, Governance and Interests of Financial Institutions within the
Rural Credit Cooperative System 60
Xingyuan Feng
1. An Overview of the Reform Process 60
2. Policy Impacts: Advantages and Disadvantages 63
3. Current Ownership Structures of RCCs and Rural Cooperative Banks are
Detrimental to Operations 64
4. Distribution of Responsibility, Rights and Interests of Financial Institutions
within the RCC System 68
5. Opportunities Remain for New and Genuine Rural Credit Cooperatives to
Prosper 70
6. Downscaling Branches and Services Fit Best the Interests of RCC
Institutions 72
References 73
5 Improving the Financial Sustainability of the Financial Institutions within
the RCC System: Problems and Policy Options 74
Xingyuan Feng and Xiang Yan
1. Introduction 74
2. Factors Affecting the Sustainable Development of the RCC Institutions 75
2.1 Ownership Structure and Governance of the RCC Institutions 75
2.2 Risk Factors 76
2.3 Other Factors 78
viii Contents
3. Countermeasures to Promote the Sustainable Development of RCC
Institutions 80
3.1 Improving the Management and Business Operation of RCC
Institutions 80
3.2 Further Pushing Forward the Reform of the RCC Institutions 82
References 84
6 The Development of Digital Inclusive Finance in Chinese Counties:
Index Construction, Measurement and Analysis 85
Xingyuan Feng, Tongquan Sun, Chong Dong and Xiang Yan
1. Introduction 85
2. Concept Definition and Literature Review 86
3. Construction and Measurement Method of Digital Inclusive Financial
Development Index of Chinese Counties 87
3.1 Compiling Principles of Digital Inclusive Financial Development Index
of Chinese Counties 87
3.2 Data Sources 88
3.3 Construction of the Digital Inclusive Financial Development Index
System for Chinese Counties 88
3.4 Determination of Weights 92
3.5 Measurement Method of Index Score 94
4. Measurement Results and Analysis of Scores of Indicators at All Levels of the
Digital Inclusive Financial Development Index System 95
4.1 The Overall Situation of the Development of County Digital Inclusive
Finance in China 95
4.2 Comparison of Digital Inclusive Financial Development in Different
Regions and Counties 98
4.3 Development of Digital Inclusive Finance in Different Provinces and
Counties 99
4.4 Analysis of the Top 100 Counties in the Development of Digital
Inclusive Finance of Chinese Counties 101
5. Conclusions and Policy Considerations 105
5.1 Conclusion 105
5.2 Policy Considerations 106
References 107
7 China’s Financing Support for Poverty Alleviation 109
Tongquan Sun
1. Introduction 109
1.1 Lack of Funds for Development in the Rural Poor Areas
of China 109
1.2 The Importance of Finance for Poverty Alleviation and
Development 109
2. Specialized Financial Policies for Poverty Alleviation 110
2.1 Credits for Poverty Alleviation 110
2.2 The Policy of Insurance for Poverty Alleviation 115
2.3 Participation of Capital Market for Poverty Alleviation 116
Contents ix
3. The Evolution of Comprehensive and Targeted Financial Policies for Poverty
Alleviation 116
3.1 Financial Poverty Alleviation Policy as a Basic Public Financial
Service 116
3.2 Policies for Developing Inclusive Finance 117
3.3 Complete, Comprehensive and Targeted Financial Poverty Alleviation
Policies 118
4. Monetary, Regulatory and Fiscal and Tax Support Policies in Compliance
with Financial Poverty Alleviation 120
4.1 Monetary Policy 120
4.2 Financial Regulatory Policies 121
4.3 Fiscal and Tax Policies 122
5. Progress and Effectiveness of Finance for Poverty Alleviation 123
5.1 Government-led Subsidized Loans 123
5.2 Microfinance of Non-governmental Organizations 125
5.3 Rural Mutual Funds in Poor Villages 126
5.4 New Mechanism of Policy-Oriented Banks 127
5.5 Innovation in Financial Mechanism and Products of Other
Commercial Banks 128
5.6 Innovation of Insurance Products for Poverty Alleviation 129
5.7 Role of Capital Market for Poverty Alleviation 129
5.8 Role of Rural Internet Finance 130
5.9 Stimulation by the Monetary and Regulatory Policies 130
6. Summary 131
6.1 Experiences 131
6.2 Outlook for the Future 132
Reference 133
Index 134