Despite some progress in the past three decades, China’s rural economy still suffers from a lack of sound financial intermediation in terms of the coverage, quantity, and quality of financial services. This article offers a study of the political economy of rural finance in China, a historical and political analysis of the reform process on a systemic level, as well as an assessment of China’s reform strategies and programs. We argue that the path of China’s rural finance reforms has been a transition from state predation that centered on the state’s extraction of rural financial resources to finance its industrialization program, to market extraction that saw the market system continue to drain rural funds into the urban economy. Given the failure of the existing strategies, we suggest that policy makers look beyond the market-centered framework and establish a system of vertical cooperation that can systematically integrate policy, cooperative, and commercial elements of both formal and informal institutions.

Please click here to read the full “From State Predation to Market Extraction” article in Modern China by Research Fellow, Dr. Hui (Steven) Feng, Griffith Asia Institute.