The Investment Security System of the Establishment and Improvement of the New Socialist Countryside Reconstruction - 中欧社会论坛 - China Europa Forum

The Investment Security System of the Establishment and Improvement of the New Socialist Countryside Reconstruction

Authors: Chao Jun

Extract from ” Macroeconomic Research, 2006“

The new socialist countryside is an integrated concept constructed with economic, political, cultural and social aspects. The Eleventh Five-Year Plan painted a beautiful blueprint of the new countryside with the words « the development of production, affluent life, civilisation, clean and tidy villages and democratic management ». The overall goal of promoting the new countryside construction should be to create change in the overall appearance of rural areas in the next 15 years, narrowing the between urban and rural areas significantly. The core question which the new countryside construction has to answer is, « Where does the money come from? » Since the implementation of the proactive fiscal policy in 1998, the central government’s financial investment in the « Three Rural Issues » has increased, displaying rapid growth, and takes up a higher proportion of the entire expenditure for financial support for agriculture. However, compared to the needs of the new countryside construction, the total amount of state financial support for agriculture is still insufficient. Certain problems have become more prominent, such as the investment structure is not reasonable, the management system is incomplete, the division of responsibility between the central government and the areas are not clear, the use of funds did not produce a desirable effect. In order to promote the needs of the new socialist countryside construction, the leading role of government investment is pushed for, so as to establish a diversified investment security system for the new socialist countryside construction.

First, ensure that the national finance supports the new socialist countryside in investing in steady growth. China’s financial fund for agriculture is a direct distribution method for agriculture and rural areas. It reflects the relationship of distribution between industry and agriculture as well as between urban and rural areas. The obvious difference from bank credit funds is that the distribution of China’s agriculture fiscal support does not prioritise economic benefits.

Agricultural public investment projects with good social benefits and poor economic benefits need the support of national financial funds. Realistically, agriculture fiscal support is undoubtedly irreplaceable by other agricultural and rural area support policies. The government has to play a leading role in the investment of the new socialist countryside. The government should continue to increase central financial investment; the local government, especially in areas which are economically developed, should have a substantial increase in investment in the construction of a new socialist countryside; adjust the ways in which agriculture fiscal support is used, highlighting the point of the government’s investment of the agriculture fiscal support; the effectiveness of the integration of the agriculture fiscal support should be explored, the management of agriculture funds should be strengthened and the effective use of funds should be increased; state laws and regulations of agricultural inputs should be improved and the agricultural input constraint mechanism should be set.

Next, the reform of the rural financial system should be sped up to provide financial support for the new socialist countryside. China’s long-term implementation of prioritising urban and industrial development has determined that the financial industry has implemented a policy where urban finance has been maintained at the expense of rural finance and where rural finance has been withdrawn in order to support urban industrialisation development. During the reform and opening up of China, especially since the 90s during the 20th century, although there is a change in policy direction, the problem of financial institutions not investing enough in rural credit funds remains unchanged.  The insurance industry is also mainly urban-based. The country lacks subsidiary and support policies for agriculture and insurance companies lack the enthusiasm in developing agricultural insurance. The introduction of a new socialist countryside has to increase rural and business loans, as well as improve rural financial services, in order to nurture a competitive rural financial market, forming a reasonable target of a rural financial institutional body, speeding up the process of reforming and creating a rural financial system. In order to achieve this, the following efforts can be made: provide finance discount or support loan guarantees, encourage commercial banks to provide loans to the agricultural industry; set up a policy-oriented agricultural credit system; deepen reform in rural credit cooperatives, encourage rural credit cooperatives to provide loans to the agricultural industry; use postal savings in rural areas for the benefit of agriculture; set up a policy-oriented insurance system to share the loan risk of rural financial institutions.

Furthermore, increase enthusiasm and initiative among organised rural communities and rural residents in participating in the construction of the new socialist countryside. The government cannot do everything in the introduction of a new socialist countryside, especially at the village level. There are a total of over 600 thousand villages in China. It is unrealistic to include various public facilities which rural residents can benefit from at the village level into the support scope of public finance. The government’s investment can only act as a guide. There is a need for organised rural communities and rural residents to play the main role in investing.

Finally, there is a need to actively lead social capital in the participation of constructing a new socialist countryside. Encourage and support various types of businesses in investing in agriculture; establish an agricultural capital market direct financing mechanism.

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