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China's monetary reform : the counterrevolution from the countryside

Authors Holz, Carsten A.
Issue Date 1999-04-28
Summary In the past decade China’s financial sector has developed rapidly. What is often ignored is the rise in financial institutions operating outside the formal financial sector. This paper focuses on the rural cooperative funds attached to lower-level tier governments and Party Committees. Their rise is explained in the context of a central-local as well as an intra-central conflict. While rural cooperative funds may pose a threat to local financial as well as nationwide macroeconomic stability, rigorously supervised funds with a clearly defined lending purpose can fulfill an important niche function. Although rural cooperative funds are government-controlled institutions, their hard budget constraint, a little regulated business environment and implicit local government deposit guarantees lead to an improvement in rural financial intermediation that neither the formal financial sector nor a private financial sector could achieve.
Language English
Format Working paper
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