Share

From State Predation to Market Extraction: The Political Economy of Chinas Rural Finance, 1979-2012

Abstract

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.