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Impact of Agricultural Financial Support on Agricultural Economic Development in South China

Open Journal of Social Sciences, 2019, 7, 178-184
ISSN Online: 2327-5960
ISSN Print: 2327-5952
10.4236/jss.2019.72015 Feb. 20, 2019 178 Open Journal of Social Sciences
Impact of Agricultural Financial Support on
Agricultural Economic Development in South
Xingsheng Song, Zhuolin Xiao*, Yuzhou Wu, Xuebin Yang, Canlan Liao, Guishan Xie
Department of Food and Pharmaceutical, Qingyuan Polytechnic, Qingyuan, China
In order to establish and improve the rural financial system and
the problem of insufficient funds in rural areas, to push forward
and promote
the development of agricultural economy, rural construction and farmers’
Due to the influence of various factors, there are many
problems in the development of rural finance in China
. Not only are there
few funds and networks, but also there is a big gap between financial products
and services and urban finance. The problem of difficult
loans for small and
medium-sized enterprises and ordinary farmers in rural areas is very promi-
nent, and the gap in rural capital deposit and loan is very serious. A large
number of rural capital outflows cannot effectively support the de
of agricultural economy.
At the same time, the problems and
deficiencies in the development of rural finance in Guangdong Province are
found out, and the corresponding policy recommendations are put forward
to provide ideas and reference for the improvement and perfection of the ru-
ral financial system in Guangdong and even the whole country, the rapid and
healthy development of rural finance, and the enhancement of rural finance
support for agricultural development.
Rural Finance, Rural Economic Growth, Agricultural Economic Development
1. Introduction
Under the realistic background of building a well-off society in an all-round way,
it has become an important task for governments at all levels to promote agri-
cultural development and increase peasants’ income. It is not only necessary to
narrow the gap between urban and rural areas in an all-round way at the macro
How to cite this paper:
Song, X.S., Xiao,
.L., Wu, Y.Z., Yang, X.B., Liao, C.L
. and
, G.S. (2019) Impact of Agricultural Fi-
nancial Support on Agricultural Ec
Development in
South China.
Open Journal
of Social Sciences
, 178-184.
February 1, 2019
February 17, 2019
February 20, 2019
Copyright © 201
9 by author(s) and
Research Publishing Inc.
This work is licensed under the Creative
Commons Attribution International
License (CC BY
Open Access
X. S. Song et al.
10.4236/jss.2019.72015 179 Open Journal of Social Sciences
level, but also to help the rural poor out of poverty and reduce poverty through
“precise poverty alleviation”. To solve the issues concerning agriculture, rural
areas and farmers, an important means is to increase the support of funds.
Without the inflow of funds into the rural areas, agriculture and peasants, it is
impossible to achieve the goal of agricultural development, rural progress and
peasants’ income increase. To solve the backward situation in rural areas, an
important aspect is to deal with the lack of funds in rural areas [1]. At present,
all over the country, China is fighting to alleviate poverty, focusing on support-
ing the agricultural economy. The state intends to invest a large amount of funds
into the agricultural economy, but it is an important issue to be considered how
to make good use of these funds and how to give full play to the effectiveness of
the investment funds. Rural finance can achieve the rational allocation of funds
and improve the efficiency of the use of funds through the financial market.
Therefore, reasonable and effective rural finance is of great benefit to the realiza-
tion of the rapid development of rural economy. This paper studies the model of
rural financial development and rural economic growth. This paper takes the
agricultural economic data of Guangdong Province as the research object in
South China. Combining with practical cases, this paper makes an in-depth
study on the methods of rural economic support. Finally, according to the actual
situation of China’s rural finance, this paper puts forward operable suggestions.
2. Literature Review
Baba analyzed the relationship between governments and finance in developing
countries. The results showed that the more government financial and financial
departments intervened, the lower the efficiency of financial institutions was.
The inefficiency of government funds allocation was more obvious in rural
finance [2].
Rey made a further empirical analysis and drew the conclusion that the gov-
ernment-led agricultural credit system in developing countries was inefficient in
promoting rural investment. In 2001, the World Economic Cooperation Organ-
ization conducted a special survey on China’s rural financial situation. Through
the study, it was found that China’s rural finance has the characteristics of high
financing risk and high threshold, and the allocation of financial funds is less
marketable, and the distorted situation of allocation is more obvious. As a result,
a large number of rural funds cannot be used for agriculture reproduction and
modernization, and the phenomenon of loss is prominent [3].
Knight systematically studied the relationship among agriculture, finance and
country. He held that a series of restrictive policies imposed by the state on pri-
vate capital resulted in the long-term unwillingness of private capital to invest in
agriculture. He also pointed out that the state played an important regulatory
role in the field of financial investment and believed that only by straightening
out the relationship among the three can finance and agriculture work together
for a long time and develop together [4].
Sturm pointed out that as an important participant in the rural financial mar-
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ket, farmers’ income increase and the development of China’s rural finance are
mutually reinforcing. Studying the relationship between the two has far-reaching
significance for the improvement of China’s financial system and the develop-
ment of the financial market [5].
Luo Bilang has studied China’s rural economy and land reform in the past 40
years. China’s rural economy is mainly through the two aspects of “stable land
property rights” and “promoting the transfer of cultivated land”. Stabilizing land
property rights through the acquisition of land ownership may restrict the de-
velopment of agriculture [6].
3. Theoretical Foundation of Rural Financial Development
and Rural Economic Growth
McKinnon modified the Harold-Domar model on the assumption that savings
propensity is a variable function of economic growth rate. In addition, consi-
dering that savings will be influenced by many other factors, if all the other in-
fluencing variables are expressed as
, then the savings rate can be expressed as:
( )
,s s YY
= ∆
By substituting the expression of savings rate into Harold-Domar model
[7], the deformation formula of the model can be deduced:
( )
,G s YY V
= ∆
4. An Empirical Study on the Relationship between Rural
Finance and Agricultural Economic Development
4.1. Selection of Indexes
An evaluation index system of the comprehensive development level of rural
finance and rural economy is constructed, which includes the basic contents of
rural finance and can reflect the development of rural finance in a more com-
prehensive way. The index system includes: total rural deposits, total rural loans,
the ratio of total rural deposits to agricultural GDP, the ratio of rural loans to
agricultural GDP and the ratio of deposits to loans, and the index numbers are
shown in Table 1.
4.2. Sources and Processing of Data
In order to avoid the interference of different dimension data on data analysis,
the method of “extreme difference” is chosen to conduct dimensionless processing
on the selected and calculated data. The dimensionless formula is:
Table 1. Variables of rural financial development.
Variables Total rural
Total rural
The ratio of total
rural deposits to
agricultural GDP
The ratio of rural
loans to agricultural
The ratio of
deposits to loans
Number X1 X2 X3 X4 X5
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In Formula (3),
min and
max refer to the minimum and maximum values in
the index data, respectively. L is the actual index value, and the mean and va-
riance of the original variables are 0 and 1 after dimensionless. The data of each
variable after treatment are shown in Table 2.
4.3. Results and Analysis of Empirical Analysis
Specifically speaking, the development of rural finance in Guangdong Province
increased by one percentage point can promote the growth of agricultural
economy in Guangdong Province by about 0.69%. This shows that the develop-
ment of rural finance in Guangdong Province has a good role in promoting and
driving the development of agricultural economy in Guangdong Province. But it
can also be seen from the data that the efficiency of Guangdong rural finance in
promoting agricultural economic development is not too high, and there is no
“multiplier effect”. How to optimize and improve the financial system to pro-
mote the effect of rural finance in Guangdong Province, so as to further promote
the development of agriculture in Guangdong Province is an important problem
that Guangdong rural finance must face in the construction and improvement
process, but also the important task that Guangdong government and financial
departments at all levels must think about deeply.
5. Problems in Rural Finance
5.1. Serious Outflow of Rural Capital and Huge Gap of Agricultural
Development Funds
There are three main channels for capital inflow and outflow from the rural
areas. The first is the financial channel, that is, to make rural capital outflow
through taxation, and then to make capital inflow into the rural areas through
financial subsidies; the second is the financial channel, the subject of the channel
is commercial banks, that is, to achieve the inflow and outflow of funds in the
rural areas through bank deposits and loans; the third is other channels, such as
private lending.
Table 2. Dimensionless results of empirical raw data.
Ye a r X1 X2 X3 X4 X5 Y
2010 0.1904 0.1309 0.3616 0.2112 0.4546 0.2831
2011 0.2473 0.1293 0.3876 0.1368 0.6770 0.2084
2012 0.3805 0.1531 0.6095 0.1644 1.0000 0.4494
2013 0.5624 0.4111 0.8006 0.5448 0.4877 0.5779
2014 0.4851 0.5467 0.5472 0.6238 0.1876 0.7457
2015 0.4077 0.6768 0.3935 0.7346 0.0000 0.8352
2016 0.5872 0.8396 0.5678 0.8677 0.0620 0.9287
(Data from the public statistics of the Guangdong Provincial Bureau of Statistics)
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In recent years, the total amount of rural capital outflow far exceeds the gap of
the demand for credit funds. After the funds obtained by farmers are deposited
in rural financial institutions, they do not flow into agricultural development
and rural construction by means of loans, but flow out of the rural areas (mainly
flow into cities through banks and other financial institutions). As a result,
supply and demand of funds in rural areas of South China is imbalanced, and
many farmers and small and medium-sized enterprises in rural areas suffer from
“difficult financing and expensive financing”.
5.2. Not Effective Guiding of Policy Banks in Agricultural
At present, the Guangdong Branch of the Agricultural Development Bank of
China is the main undertaker of the rural policy and finance in Guangdong
Province. Its main operation mode is to provide credit support for the purchase
of basic agricultural products, the construction of agricultural infrastructure and
the development of technology and other rural poverty alleviation projects by
means of low interest rate or partial interest-free. The policy-based financial
support of the Agricultural Development Bank has not led other commercial
banks and financial institutions to invest more funds in rural and agricultural
areas. On the contrary, its policy support has produced a “crowding out” effect
on commercial agricultural support funds. Therefore, how to guide more com-
mercial financial institutions to pay attention to development of An Hui agri-
cultural economy and the development of agricultural economy through market
mechanism is very urgent at present.
5.3. Lack of Motivation for Commercial Banks in Agriculture
There are three reasons for the lack of motivation of commercial banks to invest
in agriculture: first, the farmers’ credit awareness is low, many farmers feel that
loans from banks are “borrow money from the state” and it does not matter not
returning; second, rural areas are still engaged in traditional agriculture, their
ability to resist risks is low, and some township enterprises engaged in primary
processing business, with a small profit, so they are unwilling to make loans
from the perspective of bank income; third, the establishment of rural commer-
cial banks has made many large commercial banks think that it is the responsi-
bility of agricultural and commercial banks to lend to the rural areas. They have
found a reason for their business cancellation and have used this reason to foil
the supervision and promotion of governments at all levels.
6. Suggestions for Financial Support for Guangdong’s
Agricultural Economic Development
6.1. Increase the Supply of Rural Finance
To increase the supply of rural finance, it is necessary to mainly start from the
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following aspects. First, give full play to the guiding role of policy banks, that is,
strengthen the policy guidance of the Agricultural Development Bank of China
in financial supply with the core of Guangdong Branch. Second, encourage large
shareholding commercial banks to return to the rural areas through the “Inter-
net business”. Provide financial services to most of the post-70s and post-90s
farmers through mobile banking and network banking, and increase the finan-
cial supply of large commercial banks to rural areas. Third, actively encourage
rural commercial banks to carry out supporting agriculture services. Fourth, vi-
gorously develop village banks. Encourage private capital to set up village banks,
especially to support local rural residents to co-invest, and set up village banks
and manage them by themselves; support various financial leasing companies to
enter the rural agricultural field, and encourage ordinary farmers and township
enterprises to obtain all kinds of equipment needed for production through fi-
nancial leasing, so as to enable the mechanization, modernization and industria-
lization of the industry to develop rapidly.
6.2. Improve the Financial System
For the different needs of agricultural industrialization, it is supposed to con-
stantly improve the financial system for its service, especially to develop the di-
rect financing system. Through the prosperity of bond, stock and futures mar-
kets, it is necessary to promote the continuous improvement and perfection of
the rural financial system in Guangdong Province, and improve its ability to
support agriculture and benefit agriculture. For all kinds of commercial banks in
Guangdong Province, increase the credit input to agricultural production and at
the same time, constantly innovate and design financial products and services
suitable for agricultural production. In the process of financial innovation, give
full play to the role of small and medium-sized financial institutions, especially
rural commercial banks, and make them the subject of capital supply. In the
meanwhile, actively open the financial market and introduce competition me-
chanism, so that commercial banks in the competition constantly innovate, so as
to provide more quality services for agricultural production.
6.3. Focus on Supporting the Development of Related Industries
in Agricultural Industrialization
Firstly, increase credit support for agricultural industrialization industries.
Commercial banks should provide special credit support to the relevant indus-
tries of agricultural industrialization and provide corresponding business. Se-
condly, broaden the financing channels for agricultural industrialization and ac-
tively implement direct financing. Carry out the direct financing of agricultural
industrialization, including bond market and investment funds and other forms
of credit, so as to broaden the sources of funds for agricultural industrialization.
Finally, provide corresponding insurance services for the related industries of
agricultural industrialization. Encourage insurance companies to formulate spe-
cial insurance business for agricultural enterprises, avoid and reduce losses due
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10.4236/jss.2019.72015 184 Open Journal of Social Sciences
to natural disasters, diseases and insect pests, and escort the sustained and
healthy development of enterprises and the smooth implementation of agricul-
tural industrialization.
7. Conclusion
A co-integration test on the development of rural finance and agricultural
growth is made. The results show that there is a long-term co-integration rela-
tionship between the development of rural finance and the development of
agricultural economy in South China. However, from the coefficient of 0.69, it
can be seen that the efficiency of rural finance in promoting the development of
agricultural economy in South China is not too high. Further promoting the de-
velopment of agriculture in South China through the optimization and perfec-
tion of the financial system is an important issue that rural finance in South
China must face in the process of construction and improvement.
Conflicts of Interest
The authors declare no conflicts of interest regarding the publication of this pa-
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