Rural Finance in China

There is a common policy bias against creating an appropriate economic environment for rural growth in many less developed countries as governments attempt to strive for rapid industrialization through various interventions in both the urban and rural sectors. As a result, signals for resource flows are distorted and incentive to raise agricultural productivity is destroyed. Such structural distortions and the low level of income mean that investment in agricultural production is often unattractive and therefore funds for that purpose are scarce. Many developing countries have, over the past 40 years, attempted to alleviate this perceived inadequacy of credits, which was seen as the only inhibiting factor to rural development, by the provision of highly subsidized and controlled finance through the creation of specialized credit institutions. However, there is an increasing recognition that this conventional approach has failed to achieve its aim and its premises are seriously challenged.