The Chinese government has long adhered to a policy of national economic development, based on agriculture and led by industry.More recently, agricultural production has changed and the "three rural issues (agriculture, rural areas and farmers)" became the top priority for rural policy. Although there have been many profound changes, there is still a space to improve rural development. Runbo Research Center for Digital Finance, THUIFR, conducted research on China's rural financial system to understand the interaction between China’s rural financial system and the ‘three rural issues’, in order to gain insight on the current challenges facing the rural financial system.
The development of agriculture, rural areas and farmers has entered a new period:
The production and supply of grain, cotton and oil has changed. Grain output has been basically stable, achieving a continuous increase in output for more than a decade. Grain supply is basically stable and the self-sufficiency rate of remained at around 82.3 percent in 2018. According to data released by the national bureau of statistics, China imported more than 95 million tons of soybeans and 1.5 million tons of cotton in 2019. The import dependence rate of domestic food oil has reached about 70% percent. For some other agricultural and sideline products, such as meat, livestock feed, fruit and some structurally deficient food varieties, there is a need to be maintain supply balance through international markets.
Agricultural production conditions have undergone major changes. China ranks first in the production and use of chemical fertilizers and pesticides in the world. The cultivation and promotion of fine seeds and livestock breeds have achieved great results. The cultivation and promotion of hybrid rice to increase grain production alone can feed 30 million people every year. Over the years, China's grain output and yield per unit area has always ranked first in the world.
The market intensity of agriculture has been further improved. In the context of China's accession to the WTO, China's agricultural involvement in the world market has increased greatly. China has become the world's agricultural trade market. China's imports of soybeans accounted for about 60 percent of world trade in 2018, and the trade deficit of agricultural products reached $57.38 billion.
The process of urbanization and rural revitalization has been accelerated. On the one hand, migrant workers, students and other rural people who have been working and living in cities for a long time have become settled in cities, so that they can live and work in peace and contentment and become a force for urban development. On the other hand, rural-urban migration also alleviates the pressure of too many people in rural areas and on the land, providing opportunities for the realization of moderate scale land management and the promotion of agricultural modernization.
The government should pay attention to developing inclusive finance services
The relationship betweeninclusive financeand rural finance must be handled properly. To this end rural credit cooperatives were established, the Agricultural Bank’s activities have been resumed, the Agricultural Development Bank was established, and more than 1000 village and township banks were established.
The relationship between inclusive finance and targeted financial poverty alleviation must be handled properly. Therefore, the government should pay attention to accurate time and scope, criteria and measures for poverty alleviation.
The relationship between wide coverage and availability. In order to carry out inclusive finance, specific goals should be set.
The relationship between the traditional business model and Internet finance must be handled properly. With the development of fintech, Banks have greatly expanded their service areas and improved service efficiency, but they are also facing unprecedented competitive pressure. The focus of the development of Internet finance is firstly embodied in the field of inclusive finance.
The government should make effort to build institutions and mechanisms conducive to invigorating the rural financial system. Due to the different attributes of various financial institutions, their status and role in the rural financial system are also different. Responsibilities need to be clarified, direction taken, and development strategies that are consistent with their service functions.The path to achieve this is to establish several separate accounting and operation systems:
With the establishment of theses mechanisms, some new tensions and difficulties inevitably arise, including:
1.Difficulties in replenishing capital. At present, the regulatory authorities have strengthened the management of small banks to set up branches across regions and use funds across regions. If only rely on their own capital accumulation, not only the ability to replenish capital is limited but also discourage subsequent investors. This is a problem that must be faced and effectively resolved in the future reform of the rural financial system.
2.The problem of customer churn. At present, the power of large banks to extend their business into counties is increasing. As banks transform to become digital banks and open banking develops, they are more capable of taking deposits remotely and issuing small and micro enterprise and personal loans. Small banks are no longer capable of competing with large banks.
3. Small banks have limited channels and capacity to deal with bad loans. On the one hand, profitability is low, which means that it is difficult to replenish capital, and more non-performing loans cannot be written off; On the other hand, the credit business is risky, which requires the rapid disposal of non-performing loans.
