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46082-001: Study on the Financial Support for Modern Agricultural Technical Assistance Consultant’s Report Project Number: 46082 September 2015 PRC: Study on Modern Agriculture Demonstration Area Planning and Financial Support Mobilization – Study on the Financial Support for Modern Agricultural Development in the People’s Republic of China Financed by the Technical Assistance Special Fund Prepared by Xia Ying Institute of Agricultural Economics and Development, Chinese Academy of Agricultural Sciences Beijing, PRC For the Department of Development and Planning, Ministry of Agriculture This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. Asian Development Bank: Final term report on the study on the financial support for the modern agricultural development in China, part of program (No. 46082), which is about the People's Republic of China: research on the construction plan and the financial support for the modern agricultural demonstration areas Study on the Financial Support for Modern Agricultural Development in the People's Republic of China Final Report Xia Ying 1 Asian Development Bank: Final term report on the study on the financial support for the modern agricultural development in China , part of program (No. 46082), which is about the People's Republic of China: research on the construction plan and the financial support for the modern agricultural demonstration areas Catalogue Introduction ....................................................................................................................................... 5 Chapter 1 Rural Financial Development Theories and Policies in China ...................................... 6 1.1 Basic theories of rural finance ............................................................................................. 6 1.1.1 Summary of three main rural financial theories ....................................................... 6 1.1.2 Selection of financing channels in rural financial market ........................................ 6 1.1.3 Performance evaluation of rural financial institutions ............................................. 7 1.1.4 Construction and reform of rural financial systems ................................................. 8 1.2 Financial support policies on agricultural development in China ..................................... 10 1.2.1 Fiscal policies ......................................................................................................... 10 1.2.2 Policies of tax reduction and exemption ................................................................ 13 1.2.3 Policies of differential interest rates ....................................................................... 14 Chapter 2 Current Situation of Investment and Financing of Chinese Modern Agriculture: Taking Representative MADAs as Example ................................................................................... 16 2.1 Major suppliers of agricultural investments and financing in China ................................ 16 2.2 The supply status of agricultural investment and financing in recent years ...................... 18 2.2.1 Fiscal input ............................................................................................................. 18 2.2.2 Credit ...................................................................................................................... 20 2.2.3 Insurance ................................................................................................................ 29 2.3 Investment and financing demands in agriculture ............................................................. 30 2.3.1 Farms and large specialized households ................................................................ 30 2.3.2 Agricultural enterprises .......................................................................................... 35 2.4 Features and problems of supply and demand of agricultural funds ................................. 38 Chapter 3 Practical Explorations of Financial Support for the Development of Modern Agriculture: the Perspective of Product Innovation and Service Innovation .................................. 43 3.1 Mortgage and guaranteed Loans ....................................................................................... 43 3.1.1 The practice of rural land financialization in Chongqing Municipality ................. 43 3.1.2 The practice of land revenue guaranteed loans in Jilin Province ........................... 45 3.1.3 Financial innovation in the reform of the collective forest rights in Fujian Province ......................................................................................................................................... 47 3.2 Combined loans by the interaction between government, banks and insurers .................. 48 3.2.1 “Tiandong Model” .................................................................................................. 48 3.2.2 “Shouguang Model” ............................................................................................... 50 3.3 Loans for cooperatives with joint guarantee: the case of Beijing ..................................... 51 3.3.1 Cooperative loans with joint guarantee by cooperatives ........................................ 51 3.3.2 Cooperative member loans with joint guarantee by cooperative members ............ 52 3.4 The various models of supply chain financing .................................................................. 53 3.4.1 Grain supply chain loans jointly supported by financial enterprises in Henan Province .......................................................................................................................... 53 3.4.2 Wuliming model of supply chain finance created by Longjiang Bank and COFCO 2 Asian Development Bank: Final term report on the study on the financial support for the modern agricultural development in China , part of program (No. 46082), which is about the People's Republic of China: research on the construction plan and the financial support for the modern agricultural demonstration areas ......................................................................................................................................... 54 3.5 Construction of rural credit system: the case of Lishui City of Zhejiang Province .......... 55 3.6 A typical example of rural financial payment system reform: Shouguang City of Shandong Province ................................................................................................................. 55 3.7 Commentary ...................................................................................................................... 57 3.7.1 Financialization of resources assets such as farmland ........................................... 57 3.7.2 Supply chain finance .............................................................................................. 58 3.7.3 Loans jointly guaranteed by specialized cooperatives ........................................... 59 3.7.4 The model of loans jointly guaranteed by the government and the banks ............. 60 Chapter 4 Financial Support for Modern Agricultural Development: International Experiences 61 4.1 Agricultural financial service system of developed economies: organizations and functions .................................................................................................................................. 61 4.1.1 Policy-oriented financial institutions play a major role in building a complete and diversified agricultural financial system. ........................................................................ 61 4.1.2 Diversified agricultural policy-oriented financing methods well-matched with the functions of institutions ................................................................................................... 64 4.1.3 Powerful policy-oriented financial system: co-existence of strength and pressures of transformation ............................................................................................................. 66 4.2 Operation system and mechanism analysis of agricultural finance in major countries ..... 67 4.2.1 Fiscal support to agricultural financing by governments of developed economies 67 4.2.2 Cooperation among credit cooperatives: models and risk control ......................... 69 4.2.3 Cooperation between public sectors and private sectors to expand agricultural financing channels ........................................................................................................... 71 4.2.4 Development mechanism that promotes value chain finance ................................ 71 4.2.5 Institutional mechanism that promotes the development agricultural policy-oriented insurance ................................................................................................ 73 4.2.6 Establishment of agricultural development funds (ADF) ...................................... 73 4.2.7 Professional risk management and budget management, and assessment of the progress towards policy goals ......................................................................................... 74 4.2.8 Adjustment of support focus and support method in accordance with social and economic development ...................................................................................................
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