Li, T: Financial Institutions in Rural China

China has become one of the world s biggest growth engines. However, it is always critical to note that China has a financial system that is dominated by banking sector: one that is dominated by state-owned banks, and banks that heavily favor state-owned large corporations. Small and medium enterprises in China generally experience a lack of access to business capital. This is especially true in rural area, where households are business units in need of seasonal credit but with hardly any collateral. It is therefore interesting to investigate the lending situation in rural areas to see how informal lending fills in the gap between demand for credit and supply of credit by government and banks. Using data from household surveys, the author found that poverty alleviation loans are not reaching the poorest segments of the rural population. Furthermore, private lending is the most important source of credit in rural China, and factors such as higher disposable income and level of education lead to more borrowing at the household level.