Yi Xianrong
The recently convened National Financial Work Conference gave
priority to the development of a rural monetary system in the
coming years.
In the absence of significant improvement in the rural monetary
system, the backward rural economy is not expected to make any
substantial progress. This, in turn, drags down the sustainable
development of the Chinese economy as a whole.
The financial conference set two objectives in an effort to
promote the progress of a monetary system in rural areas.
First, the Agricultural Bank of China is to be reorganized and
its role redefined.
Second, new types of rural monetary institutions need to be
introduced.
The reform of the Agricultural Bank of China faces three major
questions.
First, how should its heavy baggage accumulated over the years
be removed?
Second, how should its new role be defined after the historical
burden is removed?
Third, on this basis, how can the agricultural bank be oriented
toward commercial banking like other State-owned big banks?
The financial conference initially defined the agricultural
bank's role as a monetary institution geared to serving
county-level economies.
But this is not enough because the country's rural economy has
undergone dramatic changes. This is where the crux of rural
financial reform lies.
For example, rural areas in economically developed regions such
as Jiangsu and Guangdong provinces have become fairly
urbanized.
In addition, traditional farming is giving way to industry in
these developed regions and in some areas in Central China.
Also, much of the rural labor force has shifted to developed
coastal areas to engage in industrial production and services while
the less competitive labor force is left behind, engaged in
farming.
Finally, traditional rudimentary farming continues in
poverty-stricken areas.
Taken together, a unified rural financial system is no longer
capable of catering to the needs of the rural economy.
The reform of the Agricultural Bank of China and the
redefinition of its role must adapt to the much altered and
pluralized rural economy. Consequently, different financial
patterns should be introduced to cater to different needs in
different places.
The reform of the agricultural bank should no longer be focused
on agriculture alone. Instead, the reorganized agricultural bank
ought to switch the weight of its business to serving development
in the economically developed areas and regions where farming is
giving way to industry.
Meanwhile, new types of rural monetary institutions should be
created to serve the backward areas.
The China Banking Regulatory Commission has made preferential
arrangements for the introduction of such new rural financial
institutions. This is encouraging news.
However, it is no easy job to push for overall development of
such rural financial organizations across the country. Neither
reorganization of the existing rural financial institutions nor
establishment of brand-new bodies seems feasible, taking into
account complicated situations in rural areas.
The best way is to clearly define the right of use for the land
the farmers are currently tilling. (Note: In theory, all land is
owned by the State. Farmers have only the right to use it.)
Why? First of all, we should ask: What is currently hampering
the development of rural monetary business? The answer is that
rural areas lack monetary tools and products that lessen or dilute
the risks arising from rural financial business, which centers on
credit extension.
In this scenario, we find it hard to introduce new mechanisms to
the rural monetary system.
Think why the business of housing loans has become so prosperous
in such a short time in Chinese cities. It is because housing is
the banks' most valuable tool for mortgages. It is housing
mortgages that have largely facilitated the booming domestic real
estate market and housing-related monetary business.
Why are farmers unable to get loans from banks for the
development of farming? Why cannot farmers get bank loans by
mortgaging their own housing? Most important of all, they lack
valuable properties to mortgage. Humble rural houses have very low
commercial value and cannot be turned into valuable articles to
mortgage.
Therefore, it calls for either quickening the urbanization
process or directly and unequivocally endowing each farmer with the
right to use the homestead and farmland.
When farmers have a clearly defined right of land use, they can
use the land to mortgage when they need loans from rural banks. In
this way, the channel for getting loans is opened up and various
kinds of rural financial institutions become willing to extend
credit to farmers.
In this sense, giving clearly defined land-use right to farmers
may provide an effective way to address the chronic maladies
haunting the rural financial business.
To sum up, the process of urbanization ought to be accelerated
so that larger numbers of farmers will become urban citizens,
helping downsize the rural population. At the same time, the right
of land use should be clearly defined. In this way farmers can
stand at the starting point of wealth and have valuable property to
mortgage.
The author is a researcher with the Institute of Finance and
Banking at the Chinese Academy of Social Sciences
(China Daily January 30, 2007)