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
Publication Stock No. BKK090446
Cataloging-In-Publication 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.
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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 institutions, and practitioners. The analysis contained in this volume grew out of ADB-financed technical 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 contribution toward a better understanding of the issues in the PRC rural finance market, particularly the reasons for recent reform measures and key market and institutional changes. The book will hopefully promote further work and innovative approaches toward building a sound rural finance system that allows easy access for the underserved financial segments of market services. There are indeed opportunities for synergy between government and participants in the rural financial market to join forces for poverty reduction.
The book highlights the need for a bottom-up approach in rural financial market development to meet local demand and adapt to local financial risk profiles. It emphasizes that effective supervision of rural financial market participants requires effective communication between government and the market. The book also argues that opening the rural financial market allows innovative approaches and different types of institutions to compete, thereby ensuring better services and higher efficiencies.
The contributions of authors, editors, and the staff of the Financial Sector, Public Management, and Regional Cooperation Division as well as the Department of External Relations were invaluable in producing this knowledge product and are acknowledged with gratitude.
Klaus Gerhaeusser
Director General
East Asia Department
Asian Development Bank
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 International Monetary Fund, the Federal Deposit Insurance Corporation, and the Federal Reserve Board in various positions. She has extensive research experience on rural and microfinance issues.
Xu Zhong, PhD in Economics, Senior Research Fellow and Deputy Director General, Financial 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 CitiBank, 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, International Poverty Research Center 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 international consultant for various international agencies.
Foreword
Nurturing Local Financial Strength in Rural Areas
Existing finance theory and practice has demonstrated that local small and medium-sized financial institutions are the best financial system for small and medium-sized enterprises and farming households. Government agencies in the People’s Republic of China (PRC) have proposed policies that would relax market entry criteria and allow the creation of diversified rural financial institutions, enhancing financial support for small and medium-sized enterprises and farmers. These measures will help improve the PRC’s financial structure, promote better rural financial services, enable financing of labor-intensive economic activities, and promote harmonious socioeconomic development.
The development of rural finance, in particular, necessitates innovations in perception and institutions. For this reason, I greatly appreciate the effort of the authors of this book to introduce international experience, to examine the evolution and relevant lessons of rural finance in the PRC, and to provide valuable suggestions for improvement. Developing rural finance requires the participation of local small and medium-sized banks, microcredit companies, and cooperative financial institutions as well as the development of formal and informal credit, guaranty mechanisms, and a system of investment and financing.
In recent years, the newly opened rural financial market has provided rural economic entities with diverse financing options and has introduced the concept of small-scale financial institutions. These institutions include village banks, microcredit lending companies, and credit shops. However, such small and localized institutions differ from existing commercial banks and demand innovative supervision.
The key to developing a new rural financial