The Structure and Reform of Rural Finance in China

Historically, China¡¯s political attempts to provide access to rural credit has met with mixed results and an institutional structure that often strays from intended policy goals. Unlike Robin Hood of English lore the emergence of financial institutions in China appear to have robbed from the poor to lend to the rich with actions that severely depleted the leading resources required for rural development. Historically there has been a close correspondence between financial depression and the many policy-driven financial institutions that dominated the rural financial system in China. More recently, ongoing reforms are dedicated towards a gradual liberalization within the system. In this study, we explore the context of agricultural transition and political process as defined by the various interlinkages across the Chinese rural financial system. We find that there has been negligible progress in the evolution of the rural financial market in China. The policy-led financial institutions ended up as merely a disbursement window and a costly drain on state budget. Institutional changed were locked in by patching up the existing institutions.