Chinese Banks Carry Out Rural Policy
Fred
Gale
Since 2001, China has been pushing
vast amounts of cash into its countryside through
rural financial institutions. The value of outstanding
agricultural loans more than doubled in 4 years,
from $60 billion in 2001 to $145 billion in late
2005. Surprisingly, agriculture’s share of
loans rose as well, even with lending to industrial
and real estate sectors growing at a rate of 20-30
percent per year.
The boost in agricultural lending
is part of a policy campaign to bolster the rural
economy, where growth is lagging far behind that
of China’s booming cities. The agricultural
loan campaign reflects the strong policy role of
financial institutions, one of the last segments
of China’s economy to be reformed. Banks and
rural credit cooperatives increasingly resemble
commercial banks, but they must still set aside
loans to support government initiatives. But for
all the rhetoric, the surge in agricultural lending
has had little impact on China’s agricultural
sector.
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Some of the loans finance agribusiness
firms, rural roads, water projects, and other infrastructure.
Most of the loans, however, are small short-term
loans of less than $1,000 made to agricultural households
by rural credit cooperatives, the primary financial
institutions serving rural communities. While the
loans are labeled “agricultural,” their
value far exceeds the combined value of agricultural
fixed asset investments and farm input expenses,
so it is not clear how the borrowers are spending
the money.
Such a large boost in agricultural
lending should improve the competitiveness of China’s
agricultural sector. However, statistics show little
discernible increase in agricultural investment
or input expenditures coinciding with the increase
in agricultural lending. Farms remain small—on
average, less than 2 acres—and labor-intensive,
with minimal capital investment.
China’s financial institutions,
flush with cash from China’s high saving rate,
foreign investment, and government injections of
cash to clean up nonperforming loans, continue to
lend at a furious pace. China’s financial
liquidity has allowed its financial system to simultaneously
boost lending to rural areas and other lagging regions,
recapitalize its shaky banks, and fund one of the
largest infrastructure construction efforts in history.
China’s ability to continue its financial
juggling act depends on continued growth in domestic
savings and inflows of foreign capital.
This
finding is drawn from . . . |
| New
Directions in China’s Agricultural Lending,
by Fred Gale and Robert Collender, WRS-06-01,
USDA, Economic Research Service, January 2006.
China’s
New Farm Subsidies, by Fred Gale,
Bryan Lohmar, and Francis Tuan, WRS-05-01,
USDA, Economic Research Service, February
2005.
China:
A Study of Dynamic Growth, by Mathew
Shane and Fred Gale, WRS-04-08, USDA, Economic
Research Service, October 2004.
"Can
Rural Income Growth Accelerate?,"
by Fred Gale and Albert Park, in China
Food and Agriculture: Issues for the 21st
Century, AIB-775, USDA, Economic Research
Service, April 2002. |
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