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Return to Countryside: a New Attempt of Rural Financial Transformation

In July 2009, the China Banking Regulatory Commission (CBRC) issued a three-year plan on the development of New Rural Financial Institutions. The plan proposed to set up 1294 New Rural Financial Institutions including 1027 Village Banks by the end of 2011.

BY JIAN GAO | APRIL 15, 2012

rural area

According to the plan, 75.2% of the proposed New Rural Financial Institutions would be set up in the area where agriculture plays an essential role in local economy, 65.9% in the Central and Western provinces and 35.7% in the poor area. It is remarkable that the rural and underdeveloped areas have been put in the privileged position in this financial arrangement. To make sure that fund could flow between the developed and underdeveloped, rural and urban area, the plan required that the promoters who intend to create a new institution in urban or other developed area have to set up a counterpart in the rural or other underdeveloped area simultaneously.

However, this plan is not the beginning of the Rural Financial Transformation. The transformation in fact has been carried out from December 2006 when the CBRC decided to set up experimental rural financial institutions in Sichuan, Qinghai, Gansu, Neimenggu, Jilin and Hubei Provinces. The first list experimental institutions included 21 Village Banks, 10 Rural Mutual Cooperatives and 5 Loan Companies. In 2007, the experiment was extended to 23 provinces. By June 2009, 118 New Rural Financial Institutions had been established, which were composed of 100 Village Banks, 11 Rural Mutual Cooperatives and 7 Loan Companies, of which 87 were in Central and Western area. Regardless of the aggressive plan of 2009-2011, the progress from December 2006 to July 2009 of the Rural Financial Transformation was also conspicuous.

In the statement of the three-year plan, one fact was particularly highlighted, which was the poor coverage of the financial institution in rural area. It was reflected by two issues: the first is that there were still 1424 townships which hadn’t been covered by any financial institutions by 2008; the second is it was still difficult for rural residents and enterprises to gain loans. Why has the financial supply in rural area been not able to meet their demand? Is this situation a newly emerged problem or a long-term dilemma? To answer these questions, we should throw light on the financial scheme in rural area.

  • Financial Scheme in Rural Area before and after the 1997 Asian Financial Crisis

By 1997, the rural financial structure was composed of four parts: the Big Four State-owned Commercial Banks, the Rural Credit Cooperatives, the Postal Savings Bank and Rural Cooperative Foundations. During the period of late 1970s to mid-1990s, with the deepening reforms in Chinese economy, the county territory economy in China had experienced rapid growth which was not only revealed by its proportion within the whole economy, but also characterized by a variety of growing financial bodies within the county territory. In addition to the Rural Credit Cooperative and local branches of the Big Four Banks, varied types of Rural Cooperative Foundations had played an active role in meeting the financial demand of rural people and enterprises. In 1992, there were 17,400 Rural Cooperative Foundations set in township and 112,500 set in villages. During the period from 1993 to 1996, different types of foundations continued booming under the policy supports of central government. By the end of 1996, just before the central government ordered emergent shutdown of the Rural Cooperative Foundations, the number of foundations at township level was up to 21,000.

 


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downloadbutton3Published in Political Reflection Magazine (PR) Vol. 3  No. 1

 

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