CEOCIO China reporter arrived in Jiaxian County, Shaanxi province in July with teachers and students from the “Financial Development in China’s Rural Areas” research team co-launched by HSBC and School of Economics and Management, Tsinghua University, for a 7-day study tour.
Jiaxian County is a state-level poverty-stricken area, which has been on the bottom of Shaanxi Province’s “Fortune” list for 19 consecutive years. Located in the southeastern part of Yulin City, the county has 8 townships with 653 administrative villages under its jurisdiction. Agricultural laborers account for 91.1% of the total population, which numbers 271,000. The county spans over a piece of land as large as 2,028 square kilometers. 30% of the area is sandy, 48% hills and ravines, and 22% mountains. Chinese dates are the only crop that can be developed as an industry in the county.
Such a poverty-stricken county has many peers in China. Jiaxian County is an excellent example to learn about the current conditions and future of finance in China’s rural areas.
Unsatisfied Demand for Loans
When the reporter met Ms. Jiang, she was sitting idle beside the table where people played cards. At the entrance to the village were two other grocery stores.
Jiang couldn’t remember clearly when she went to the local branch of Agricultural Bank of China (ABC) or rural credit cooperative. “It was probably when my children were young,” she recalled. Now her two sons have married and her daughter has graduated from college for some years. However, that she didn’t go to apply for loans at the local credit cooperative or ABC branch for years does not mean she is not short of money. Last year, she organized the wedding of her second son, leaving a debt of RMB7,000 (US$1,025). “We haven’t paid off the debt yet,” she said.
Jiang and her husband borrowed money from their friends and relatives with a monthly interest rate of at least 0.6‰. When Jiang fell ill last year, she couldn’t wait for the money from her sons. “I would have borrowed money from some of the wealthier villagers,” she said. If she maintains a good relationship with the creditor, she does not need to look for a warrantor. But if someone else introduces her to the creditor, a warrantor is a must. “Normally, we just reach an oral agreement, and I don’t write an IOU,” she said. She also told the reporter that when she was in urgent need, she would even borrow money with monthly interest rates of up to 1.5‰ or 2.0‰.
Since she married, she has been living in a cave-house with her husband. Her family doesn’t have any savings at present, but a few hundred yuan are usually enough to see them through the month.
Mr. Cao, who runs a grocery at the village entrance, presents a different case. Over the past few years, he sent his four sons to college and had to borrow about RMB70,000-RMB80,000 (US$10,254-US$11,719). After squeezing all his friends and relatives, he took out RMB50,000-RMB60,000 (US$7,324-US$8,789) of poverty alleviation loans from the local credit cooperative. “I have just paid off most of the loans,” he said. In fact, he couldn’t get such a large amount of loans in his name, because the credit line for each household was just several thousand yuan. Cao had to use nearly eighty people’s names and ID cards to get the loans for his children’s studies.
Currently, in Jiaxian County, farmers need money for education and medical care. Chai Xiaoping, head of the county, called the county a “large depositor” because of its annual fiscal revenues of RMB20 million (US$2.9 million) and per capita net earnings of around RMB1,900 (US$278). Although total deposits amount to RMB600 million (US$87 million), people can hardly secure loans. Approved loans stood at around RMB300 million (US$43.9 million), half of which were circulated in other counties.
Therefore, when Mr. Cheng from Chengjiagou Village told the reporter the amount of loans he just received, people were shocked. He borrowed RMB350,000 (US$51,270), and bought two agricultural vehicles with the loan.
Chengjiagou Village is located at Wangjiabian Town, where the Jiayu Expressway and Jiashen Expressway meet. Shenmu County, which is opposite, is blessed with abundant natural resources: the salt and coal-mining industries are well developed. Freight and transportation services are thus an excellent business choice. However, among the RMB350,000 (US$51,270), only RMB45,000 (US$6,591) was borrowed from local credit cooperative. The rest was secured from informal financial institutions.
The reasons why people don’t like to borrow money from the credit cooperative include complicated procedures and personal connections. Another important reason is that the credit line, which the credit cooperative can extend, far satisfies Cheng’s needs. According to Jiaxian County credit cooperative regulations, ordinary employees can only grant a credit of RMB15,000 (US$2,197), and loan officers no more than RMB20,000 (US$2,929). A loan committee should examine any application for a loan exceeding this limit. Cheng is well known locally and was therefore able to secure RMB45,000 (US$6,591), the upper limit on loans from the credit cooperative. This is by no means enough to buy two agricultural vehicles.
In the Chengjiagou Village field study, we found that all the local families interviewed had borrowed money, all from private lenders. The director of the Jinmingsi Town credit cooperative roughly estimated that locally circulating private funds is around RMB5-6 million (US$732,440-878,928). In contrast, the aggregate loan of the cooperative branch was no more than RMB6 million (US$878,928). This means local farmers could demand double the credit.
