Farmers Need Money to Run for 'Xiaokang'

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Last updated at: (Beijing Time) Friday, November 29, 2002

Farmers Need Money to Run for 'Xiaokang'

While striding for an all-around "Xiaokang", or literally well-off, society, China must make sure that most farmers don't lag behind too far.

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While striding for an all-around "Xiaokang", or literally well-off, society, China must make sure that most farmers don't lag behind too far.

As aspirant for wealth as their urban counterparts, Chinese farmers usually feel their entrepreneurship discouraged - they find nowhere for the start-up money.

Theoretically, one has to hold at least one of the three elements to start their businesses: land, natural resources (including brain power, knowledge or wisdom), or money.

The per capita less than 1 mu (0.06 hectare) farming land, the coarse or sometimes primitive farming techniques, the household-based farming organization, the extremely insufficient education and training, and the over 800 million farmers have, to some degree, excluded the first two options.

The declining domestic grain prices since 1997 and the longtime mutually-separated urban and rural economies have rendered Chinese farmers not only unable to earn more by selling their grain, but also incapable of benefiting much from China's rapid economic growth.

The rapidly growing China over the past two decades has not offered many non-agricultural jobs to farmers.

There seems to be only one resort to get money: banks.

But it turns out to be very hard for them to borrow money from them.

Limited channels

In 1997, as a measure of cutting the non-performing assets and reducing the ratio of bad loans, the Chinese Central Government withdrew nearly all the branches and outlets of State-owned commercial banks out of the counties and villages, which in the past usually catered to farmers' financial demand.

After the retreat, farmers are told to turn to the rural credit cooperatives if they want to borrow money.

But these rural credit cooperatives do not perform their designated role well.

Mostly controlled by local governments or State-owned firms, the credit cooperatives suffer the same illness as all State-owned businesses - an unclear property right, which makes few to really care about their efficiency and profitability.

Moreover, the credit cooperatives have also inherited a considerable number of bad loans and non-performing assets from the State-owned commercial banks during their retreat out of the counties and villages, which has further restrained their capacity in delivering service to farmers.

Most importantly, all the credit cooperatives face the same dilemma as their predecessors: To serve the numerous farmers on the small savings and/or loans accounts usually means a relatively higher cost and risk. Therefore, they would rather turn to bigger clientele, for example some local firms.

By June in this year, of the total 551 billion yuan (US$66.62 billion) credit issued by the rural credit cooperatives, only 40.5 percent finally flowed to the agricultural sector, and less of which went to farmers.

The "underground" credit houses

For the rural financial vacuum, farmers create their own money flow to fill: the private or "underground" credit houses.

They are "underground", because the government declared them illegal in 1998 on the charge of disrupting the normal financial and banking order, smoldering financial risk and practicing usuries.

Of the loans issued by the private credit houses, about 33 percent happen among kin, relatives and friends, which usually carry low interest rates or are simply free of charge, according to a research by Wen Tiejun, a famous expert of Chinese rural economy.

But the remaining do charge high interest rates, sometimes over ten times more than the official rates, Wen said.

However, the fact that these private credit houses exist and sometimes thrive in countryside even today has revealed that farmers need them, and that both borrowers and lenders can find ways to carry on the credit contract.

Experts agree that the relatively closer social relationships between friends, kin and acquaintances in the small village communities have ensured a better knowledge of the borrowers before the lending and some kind of guarantee for the payback of the loan.

Such a condition has actually fused the biggest concern of the official rural credit cooperatives over farmers' creditability while they appeal for the loans.

In addition, farmers' loans are mostly small, usually below 10,000 yuan (US$1,209), for which State banks may find too modest to be worthy of their booking.

If so, why not legalize these private credit houses, integrating them into the whole banking system but letting them operate within some special financial regulations?

Anyhow, even in the year 2020 or 2030, when China is supposed to have evolved to the so-called "Xiaokang" society with half of Chinese population living in cities, there are still about 800 million farmers, because demographers say China's total population will shoot up to 1.6 billion by then.

So, Chinese farmers need the financial services particularly tailored for them even at that time.

By PD Online Staff Forest Lee

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