The CPC Central Committee and the State Council attach great importance to the core role of rural finance in serving rural areas, the agricultural sector, and farmers. Since 2003, the central authorities have unswervingly carried out a series of important reforms, including the reform of rural credit cooperatives, and rolled out multiple support policies to facilitate the innovative development of rural finance. The rural financial service system has been further perfected, with capacity of rural finance serving rural areas significantly enhanced, and the rural financial ecosystem constantly improved. Those developments have played an important role in advancing agricultural production, rural economic development and income growth for farmers. Outstanding agricultural loans by all financial institutions increased by 534.4 percent, an average annual growth of 16.5 percent over the past 11 years since 2007, when statistics of agricultural loans were first officially collected and calculated. Outstanding agricultural loans totaled RMB32.7 trillion at end-2018 from RMB6.1 trillion at end-2007, accounting for 24 percent of total loans, up 2 percentage points over that of 2007 (22 percent). Direct financing such as bonds and stocks witnessed rapid development. Futures market for agricultural commodities was set up and played its role in a gradual manner. From 2007 to 2018, China’s premium income from agricultural insurance rose from RMB5.18 billion to RMB57.27 billion, and the number of rural households participating in the insurance program surged from 49.81 million to 195 million, up 10.1 times and 2.9 times respectively.
In recent years, the PBC and relevant authorities have fully implemented the strategic arrangements of rural revitalization, constantly deepening the reform, improving the system of support policies, actively guiding financial institutions to innovate new products and services and effectively strengthening the construction of rural financial infrastructure. As a result, the coverage, accessibility and convenience of rural financial services are continuously improved. Regarding the reform measures and innovation practices, relevant authorities have mainly done the following work.
Synergy of support policies has been strengthened. Based on the dynamic adjustment of parameters in the Macro Prudential Assessment (MPA), a combination of monetary policy instruments such as differentiated required reserve ratio(RRR), central bank lending, central bank discount and pledged supplementary lending (PSL) was adopted in a flexible manner to guide financial institutions to strengthen support for MSEs, rural areas, the agricultural sector and farmers. At end-2018, outstanding central bank lending to “rural areas, the agricultural sector and farmers” and MSEs totaled RMB287 billion and RMB217.2 billion respectively. RMB3.3795 trillion of funds were provided through PSL for China Development Bank, Agricultural Development Bank of China and the Export-Import Bank of China. Preferential tax, interest discount, award, premium subsidy and other means were used in an integrated way to encourage financial institutions to enhance their support to rural areas, the agricultural sector, and farmers. Financial inclusion services were incorporated into the regulatory assessment system. Differentiated regulatory requirements in capital management and tolerance of non-performing loans were introduced.
In the rural financial reform, agriculture-related financial institutions refocused on their original functions, and oriented their aim and foothold at serving the real economy. Agricultural Bank of China (ABC) has constantly improved the operation mechanism of the financial business unit (BU) of “Rural areas, the Agricultural sector and Farmers”. Thirty-six tier-one branches of Postal Savings Bank of China (PSBC) have established a management framework for financial business dedicated to rural areas, the agricultural sector and farmers. Five large-scale banks and ten joint-stock banks have set up financial inclusion BU or other departments or centers that are dedicated to financial inclusion, and established a management system based on business lines and specialized operational mechanism. Pilot program that establishes a new management model, which allows certain commercial banks to set up or designate a village bank under their control as an investment management arm to hold shares of all village banks it owns, as well as the program that sets up cross-county village banks has been carried out. Restructuring of rural credit cooperatives was promoted and corporate governance was improved in an accelerated manner .
Well-targeted efforts have been made in innovating products and services for rural revitalization. The pilot program of loans secured against management rights of contracted rural land and farmers’ housing property rights was promoted in a stable and orderly manner in a bid to improve the quality, increase the quantity and expand the coverage of the program. Banks explored businesses that allowed farmers to collateralize their large farm machinery and agricultural production facilities for loans, and experimented supply chain financing, so as to support quality agricultural development and moderate scale business. Multiple models were innovated to provide financial support for green agriculture, rural complex, water conservancy and environment improvement programs. Initial effects have been achieved in expanding the coverage, improving the standard and increasing the variety of agricultural insurance.
In terms of financial support for poverty alleviation, the management of central bank lending for poverty alleviation purpose was improved, with micro-credit management enhanced. Enterprises in impoverished areas enjoyed a green pass for IPO with new instruments launched such as bank bills and corporate bonds dedicated for poverty alleviation. Financial institutions have been active in developing credit and insurance products to alleviate poverty. By end-2018, outstanding central bank loans for poverty reduction totaled RMB182.2 billion, a year-on-year increase of 12.7 percent. Outstanding targeted loans for poverty alleviation registered RMB4.2461 trillion, up 12.5 percent from the previous year. A total of RMB27.65 billion of bank bills in 26 tranches were issued for poverty alleviation.
As for the development of financial inclusion, financial infrastructure construction and digital services for financial inclusion were both vigorously promoted. The building of credit information system was improved, in which credit files of 2.61 million MSEs and 184 million rural households ere created. On the whole, it has been realized that “everyone in rural areas has a bank settlement account, every township has an ATM, and every village has a POS”. The accessibility, application and quality of financial services were further enhanced. Digital products and services are enriching, which effectively lowers the threshold and cost of financial services. Five of China’s experience in developing digital financial inclusion were selected into “ G20 Digital financial inclusion: Emerging Policy Approaches” issued by Global Partnership of Financial Inclusion (GPFI), which actively boosted the development of financial inclusion across the world.
At the same time, it should be noted that with significant supply-demand contradiction in financial services in rural areas, it is still an arduous task to promote reform and innovation of financial services according to the requirements of the rural revitalization strategy and the financial supply-side structural reform. Going forward, the PBC will follow the guidance of Xi Jinping’s Thought on Socialism with Chinese Characteristics for a New Era, focus on the overall arrangements on implementing the rural revitalization strategy and financial supply-side structural reform, adhere to market-oriented operation, with institutional reform as the driver, policy support as the guidance and risk prevention and control as the bottom line, and deepen the reform and innovation to establish and improve the systems of market, organization and products to serve rural revitalization by financial services, so as to better satisfy the diversified and multi-tiered financial needs of rural revitalization and promote integrated urban-rural development.
The first is to push forward market-oriented reform and establish a more competitive rural financial system. Following the principles of loosening market access, deepening reform and improving risk prevention and control mechanism, it is feasible to consider taking community banks as breakpoints to moderately open market access and attract private capitals. Equality in rights, opportunities and rules must be upheld, so as to create a fair market environment for rural financial market entities to conduct business for communities. Efforts shall be made to reform rural credit cooperatives and provincial cooperative unions to highlight their specialized service functions. Non-depository lending organizations such as micro-finance companies shall be regulated and let these organizations play an active, beneficial and complementary role in serving rural revitalization.
The second is to improve regulation on rural finance and strengthen the quality and efficiency of relevant supervision. The regulatory functions of central and local supervisory authorities shall be clarified，and reasonable and effective division of work shall be established. Information sharing and regulatory cooperation shall be enhanced, with regulatory blanks avoided and regulatory approaches adjusted.
The third is to focus on key areas, and strengthen innovations in financial products and services. In key areas of rural revitalization, including poverty reduction, food security, green agriculture, and the integration of primary, secondary and tertiary industries, financial products and service innovation should be enhanced. Loans secured against the management rights of contracted rural land shall be promoted in an active and prudent manner. Rights to use rural collectively-owned commercial construction land and collective assets or shares can be accepted as collateral in accordance with laws and regulations, so as to establish an all-inclusive and diversified asset collateral (pledge) system in rural areas. Efforts will be made to encourage financial institutions, by issuing green financial bonds and other means, to raise funds for pollution prevention and control, clean energy, water conservation, ecological protection, green agriculture and other green industries.
The fourth is to perfect support policies and bring out the endogenous power of financial institutions. Positive incentives of monetary, finance, tax, and regulatory measures shall be optimized and refined to shift from “compensating for bad and poor financial institutions” to “rewarding good and outstanding businesses”. Agricultural insurances shall be further encouraged to expand the coverage, improve the standard and increase the variety, and the premium subsidy mechanism and reinsurance system shall be perfected. The rural credit security system shall be enhanced, and the service network shall be extended to towns and counties. The role of state financing guarantee fund shall be further strengthened to direct more financial resources supporting rural revitalization. Local governments shall be encouraged to improve the registration, assessment and transfer mechanisms for property rights in rural areas, and to promote the building of rural credit system.
The fifth is to fully rely on digital technology to maximize complementary advantages. Commercial banks shall be encouraged to make comprehensive plans for business expansion in communities with both physical and digital approaches. Physical network is expected to make up for the deficiency of the “digital divide”. Financial standard construction shall be advanced in digital financial inclusion. The development of internet finance in rural areas shall be regulated. Furthermore, digital financial inclusion shall be further strengthened to advance consumers’ knowledge and ability of risk prevention in digital finance.
