Rural Finance in Poverty-Stricken Areas in the People’S Republic of China Balancing Government and Market
Total Page:16
File Type:pdf, Size:1020Kb
RURAL FINANCE IN POVERTY-STRICKEN AREAS IN THE PEOPLE’S REPUBLIC OF CHINA BALANCING GOVERNMENT AND MARKET Zhang Xuechun, Xu Zhong, Shen Minggao, and Cheng Enjiang Ying Qian and Todd A. Manza Editors RURAL FINANCE IN POVERTY-STRICKEN AREAS IN THE PEOPLE’S REPUBLIC OF CHINA BALANCING GOVERNMENT AND MARKET Zhang Xuechun, Xu Zhong, Shen Minggao, and Cheng Enjiang Ying Qian and Todd A. Manza Editors ©2010 Asian Development Bank All rights reserved. Published 2010. Printed in the Philippines. ISBN 978-971-561-892-2 Publicaon Stock No. BKK090446 Cataloging-In-Publicaon Data Zhang Xuechun, et al. Rural finance in poverty-stricken areas in the People’s Republic of China: balancing government and market. Mandaluyong City, Philippines: Asian Development Bank, 2010. 1. Rural finance. 2. People’s Republic of China. I. Asian Development Bank. The views expressed in this book are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publicaon and accepts no respon- sibility for any consequence of their use. By making any designaon of or reference to a parcular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. ADB encourages prinng or copying informaon exclusively for personal and noncommercial use with proper acknowledgment of ADB. Users are restricted from reselling, redistribung, or creang derivave works for commercial purposes without the express, wrien consent of ADB. Note: In this report, “$” refers to US dollars. Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Tel +63 2 632 4444 Fax +63 2 636 2444 www.adb.org For orders, please contact: Department of External Relaons Fax +63 2 636 2648 [email protected] ii Contents Preface vii About the Authors viii Foreword: Nurturing Local Financial Strength in Rural Areas ix Abbreviations xiii Introduction 1 Ensuring Access to Finance 1 Promong the Domesc Opening of Financial Markets 5 Part I. An Overview of Rural Finance Chapter 1. Rural Financial Reform 17 History of Rural Finance in the People’s Republic of China 17 Main Issues of the Rural Financial System in the People’s Republic of China 30 Lessons from Rural Finance Reform 33 Chapter 2. Rural Economic Situation 37 General Economic Situaon 38 Industrial Structures 39 Agriculture Loans 39 Fiscal Posion 39 Sources of Farmers’ Income Growth 40 iii Chapter 3. Rural Financial Services for the Poor and for Rural Migrants 43 Local Instuonal Outlets 43 Agriculture and Poverty Reducon Loans 45 Remiances of Rural Migrants 56 Part II. Current Rural Financial Policy Chapter 4. Capital Flows and Rural Finance 65 Interregional Capital Flows 66 Loans and Deposits 71 Chapter 5. Interest Rate Policy 75 Changes in Rural Deposits and Loans 76 Market Distorons and Efficiency of Rural Financial Instuons 77 Instuonal Response to Market Distorons 81 Part III. Financial Models Chapter 6. Cooperative Finance 87 Principles of Cooperave Finance and Internaonal Experience 88 Lessons of Cooperave Finance in the People’s Republic of China 89 Strengths of Rural Credit Cooperave Reform Policies 93 Rural Credit Cooperave Reform Policy Issues 95 Evaluaon of Rural Credit Cooperave Reform Policy 95 Chapter 7. Microfinance 101 Diversified Microfinance Development Model 102 Lessons of Microfinance 104 Development and Innovaon of Microfinance in the People’s Republic of China 105 Internaonal Microfinance Donor Agencies 107 Reasons for the Slow Development of Microfinance 109 A New Phase of Microfinance Development 111 Chapter 8. Informal Finance 113 Informal Finance in the People’s Republic of China 114 Informal Finance in Poverty-Stricken Areas 115 Informal Financial Instuons 116 Comparison of Formal and Informal Finance 116 Rural Finance Opons in Poverty-Stricken Areas 117 iv Part IV. Surveys, Pilot Studies, and Policy Recommendations Chapter 9. Surveys and Pilot Projects 121 Poverty Reducon Loans 121 Rural Remiance 123 Cooperave Finance 125 Microfinance 143 Informal Finance 148 Chapter 10. Policy Recommendations 151 General Policy Consideraons 151 Poverty Reducon Loans 157 Rural Remiance 159 Cooperave Finance 161 Microfinance 168 Chapter 11. Opening the Rural Financial Market and Piloting New Rural Financial Institutions 179 Important Issues in Opening the Rural Financial Market 180 Addional Requirements 183 Cost-Effecve Approach 185 Appendix 187 List of Tables A.1: Number of Banking Outlets, by Region, 2005 189 A.2: Credit Market Concentraon in Sample Counes, 1999–2003 189 A.3: Rural Deposits in Sample Counes, 1999–2003 190 A.4: Rural Loans in Sample Counes, 1999–2003 191 A.5: Rural Credit Cooperaves’ Nonperforming Loans, Bad Debt, and Losses in Sample Counes, 1999–2003 192 A.6: Fiscal Funds for Poverty Alleviaon in Sample Counes, 1999–2003 192 A.7: Interest Collected in Sample Counes by the Agricultural Bank of China, 1999–2003 193 A.8: Agricultural Development Bank of China Nonperforming Loans in Sample Counes, 1999–2003 193 A.9: Agricultural Bank of China Loans Outstanding in Sample Counes, 1999–2003 193 A.10: Agricultural Bank of China Loans in Sample Counes, 1999–2003 194 A.11: Agricultural Bank of China’s Poverty Alleviaon Loans in Sample Counes, 2001–2004 194 A.12: Rao of Medium- and Long-Term Loans to Total Agricultural Bank of China Loans in Sample Counes, 1999–2003 195 A.13: Agricultural Bank of China Deposit–Loan Rao in Sample Counes, 1999–2003 195 v A.14: Agricultural Bank of China Enterprise Loans in Sample Counes, 1996–2003 196 A.15: County Revenues Surrendered and Subsidies, 2000–2004 197 A.16: Number of State-Owned Commercial Bank Outlets per County, by Region, 2000–2004 197 A.17: People’s Bank of China Agriculture Loans per County, by Region, 2000–2004 197 A.18: Funds Deposited with Higher Financial Instuons, by Region, 2004 198 A.19: Rural Migrant Workers’ Annual Remiance per County, by Region, 2000–2004 198 A.20: Foreign Direct Investment per County, by Region, 2000–2004 198 A.21: Domesc Direct Investment per County, by Region, 2000–2004 199 A.22: Rural Deposits, 1989–2005 199 A.23: Amount and Composion of Rural Loans, 1989–2005 200 A.24: Agricultural Bank of China Loans, 1989–2005 201 A.25: Rural Credit Cooperave Loans, 1989–2005 202 A.26: Porolio Balance and Cumulave Loans of the Agricultural Bank of China and Rural Credit Cooperaves, 1989–2001 203 A.27: Rural Deposits and Loans, 1991–2001 204 A.28: Demand for Credit Among Sample Populaon 204 A.29: Fund Inflows in Sample Counes, 2003 205 A.30: Rural Credit Cooperave Deposits and Loans Outstanding in Guizhou, 2000–2003 205 A.31: Agricultural Bank of China Deposits and Loans Outstanding in Guizhou, 2000–2003 205 Notes 207 vi Preface The Asian Development Bank (ADB) is pleased to make this book on rural finance issues in the People’s Republic of China (PRC) available to policy makers, financial instuons, and praconers. The analysis contained in this volume grew out of ADB-financed techni- cal assistance projects for rural and microfinance that focused on expanding sustainable financial services to the rural poor in underdeveloped areas. The book is a valuable contribuon toward a beer understanding of the issues in the PRC rural finance market, parcularly the reasons for recent reform measures and key market and instuonal changes. The book will hopefully promote further work and innovave approaches toward building a sound rural finance system that allows easy access for the underserved financial segments of market services. There are indeed opportunies for synergy between government and parcipants in the rural financial market to join forces for poverty reducon. The book highlights the need for a boom-up approach in rural financial market develop- ment to meet local demand and adapt to local financial risk profiles. It emphasizes that effecve supervision of rural financial market parcipants requires effecve communica- on between government and the market. The book also argues that opening the rural financial market allows innovave approaches and different types of instuons to com- pete, thereby ensuring beer services and higher efficiencies. The contribuons of authors, editors, and the staff of the Financial Sector, Public Manage- ment, and Regional Cooperaon Division as well as the Department of External Relaons were invaluable in producing this knowledge product and are acknowledged with gratude. Klaus Gerhaeusser Director General East Asia Department Asian Development Bank vii About the Authors Zhang Xuechun, PhD in Economics, Research Bureau, People’s Bank of China. Prior to joining the People’s Bank of China, Zhang Xuechun worked for the Asian Development Bank, the Internaonal Monetary Fund, the Federal Deposit Insurance Corporaon, and the Federal Reserve Board in various posions. She has extensive research experience on rural and microfinance issues. Xu Zhong, PhD in Economics, Senior Research Fellow and Deputy Director General, Finan- cial Market Department, People’s Bank of China. Xu Zhong has been engaged in rural and microfinance policy making and research for more than 15 years. Shen Minggao, PhD in Economics, Economist at CiBank, and adjunct professor at the China Center for Economic Research, Peking University. Shen Minggao has a long-term interest in rural finance research. Cheng Enjiang, PhD in Economics, Professorial Fellow, Internaonal Poverty Research Cen- ter in the People’s Republic of China. Cheng Enjiang is an adjunct professor at the Zhejiang University, and has been involved in rural finance research for more than 15 years. He has also worked as an internaonal consultant for various internaonal agencies. viii Foreword Nurturing Local Financial Strength in Rural Areas Exisng finance theory and pracce has demonstrated that local small and medium-sized financial instuons are the best financial system for small and medium-sized enterprises and farming households.