Developments and Prospects for Rural Finance in China

A central theme of China’s 11th Five Year Plan (2006-2010) is the building of a “new socialist countryside.” Over recent years, reforming rural finance and improving access to credit by small businesses and farmers has figured increasingly prominently in the leadership’s proclamations of support to rural economic development. While hundreds of pilot innovations in small-scale finance have been pursued by local and international donors, very few have proven financially self-sustaining and none have proven scalable. A key challenge in promoting rural financial sector development is having sustainable, systemic impact. Internationally, the policy approach and business practices necessary to meet the credit and financial services needs of formal and informal smaller businesses on a commercially sustainable basis are increasingly well understood. This paper assesses the extent to which such approaches and practices are being adopted in China generally, and their prospects for adoption in rural China. It examines several recent central government financial sector initiatives, most of which have the potential to have systemic impact. It makes recommendations regarding one important challenge not yet initiated in earnest, the restructuring of the Agricultural Bank of China.