Download Thoughts on Financial Support Mode in Rural Housing Construction

Thoughts on Financial Support Mode in Rural Housing Construction
ZHANG Fengzheng, CHEN Lidan
School of Economics and Management, Beijing Jiaotong University, P.R.China, 100044
School of Business, Renmin University of China, P.R.China, 100872
[email protected]
Abstract: The urbanization process is at a rapid development stage in China, and the development of
house construction in rural is urbanization a critical factor, which is inseparable from the financial
support. To ensure the development of the urbanization process is smooth, we should build a suitable
China’s national conditions financial support mode, which follow principles of the stage, separation of
investment and financing and social.
Keywords: house construction in rural, financial support, principles, model
1 Introduction
Advancing urbanization is the basic pathway to promote China’s rapid economic growth, to optimize the
economic structure, to improve people’s living standard, and the fundamental way to solve the “three
rural” issue. With the rapid development of urbanization, the capital investment in both residential and
housing construction are steady growth. The housing construction model is from self-built, mutual aid
and a total build change to the housing industry, which bottleneck is economy financing. The problem is
becoming serious, such as the funds demand is far greater than money supply; consumer credit is too
small; housing loans is difficult. Therefore, built a suitable China’s national conditions financial support
mode is important.
The research on China’s domestic financial support for rural residence start later, it is still at the
exploratory stage, and there is no theory of the formation system. Most of them study in residential,
urban real estate, housing market and so on. In the villages housing is really limited, even the villages
housing patterns of financial support is rarely involved. This paper is based on extensive literature,
combining all the information from home and abroad, and summing to build a patterns of financial
support for China’s villages’ housing construction, which is suitable for it current feature. I feel happy
that I can do something for China’s urbanization.
2 Present situation and existing problems of house construction in rural
2.1 Present situation of house construction in rural
2.1.1 The overall steady growth
The problem of house construction in rural related to the 930 million peasants live in peace and social
stability, which is building a moderately prosperous and harmonious society guarantee in China. In
recent years, with the social and economic development in rural areas, villages’ house construction is
also stable development, housing construction volume and the amount of capital investment has
maintained stable growth, per capita housing area was an upward trend. 2005-2007, residential area is
maintained at 500-700 million square meters, housing investment remained at around 600 billion,
housing investment remained at 2,000 to 3,000 billion, average resident size from 26.7 m2 to 29.2 m2,
the proportion of residential investment funds and the house construction investment remained at about
50%.
2.1.2 A significant share of funds
In 2007, the total investment of villages’ construction is 690.4 billion Yuan. According to geographical,
town is 295 billion Yuan with rural 35.2 billion, farms 5.8 billion, villages 354.4 billion, and accounting
for a total investment of 42.7%, 5.1%, 0.8%, and 51.4%. According to application, housing invests
558.4 billion Yuan, municipal public facilities 132 billion Yuan, the total investment is 80.0%, 19.1%.
Housing investment 558.4 billion Yuan, of which into housing construction 315.4 billion Yuan, public
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building 77.1 billion, productive buildings 165.9 billion, accounting for housing investment of 56.5%,
13.8%, 29.7%.
2.2 Existing problems
The farmers in China’s vast rural areas, because of low income, weak economic foundation, and
expected income uncertainty, the bad traditional concept “first accumulation second consumption”,
small financing channels, and weak financial and so on, the farmers are difficult to improve their own
domestic capacity. Furthermore, government follows top-down and big-small, putting his limited
financial into construction, rural housing and settlements building have just been concerned, the lack of
financial input has not been significantly improved. It is estimated that for quite a long time, in china’s
villages’ house construction, there are about 3,000 billion investment and 6,000 social needs every year.
The financial needs and supply will be very conspicuous contradiction. So, building a suitable financial
support model is very important. This paper reviews a large number of documents, basing on the support
model principles, to explore a suitable one for current model.
3 The principles of financial support for villages’ house construction
3.1 The principle of phases
According to the present characteristics of the new rural construction, it can be divided into four phases.
The first phase, financial support is the new starting point for the development of rural construction
model. Through the relocation compensation, relocation, social security, skills training, job placement,
etc to accommodate the farmers realize public, thus enabling the farmers living and consumption
patterns. The second phase, the rural urbanization is the development of the new rural building model.
Through building the infrastructure construction, such as commercial, medical, educational, and cultural
facilities, that farmers have life and business supporting environment. The third stage, peasant citizens is
an important guarantee for rural development. Through attracting foreign investments and industrial
development, to enable industrial development to achieve regional industrialization, then make land
intensive use. The fourth stage, the region industrialization is the new rural construction model final.
Increase in per capita refined, and has advanced agricultural technologies. In the whole process will
result in a cascade effect – agricultural industrializations. Phase principle stresses at different stages of
the housing needs of the farmers are different. Financial resources, structure, sequence, size of the
arrangement should be different too. Financial support for the villages housing construction must not
stagnant or too far ahead.
3.2 The principle of separation of investment and financing
Principle of separation of investment and financing is to achieve separate the commission, fund
management and capital used, so that the three independent of each other, forming the ring limit
clear-cut and relationship of mutual restraint and supervision. The principle is conductive to overcoming
the current investment and financing system problems, such as unclear responsibilities and constraints.
Can effectively improve the utilization of funds, and then improve the level of rural housing. In this
principle, as fund managers, government is a middleman between positions and users, just organizers of
investment and financing, rather than the actual provider. Agencies do not have to worry about the
availability of funding sources, can be absorbed and in accordance with national macro- policy
intentions, so that improve fund use efficiency, enabling access to profits while improving the level of
rural housing. The model also can be widening funding channels, and private capital will no longer be
completely based on the government’s administrative policies and can flexibility to join in and out,
making financing more convenient and efficient.
3.3 The principle of socialization
After several decades of rapid development, china’s housing credit has entered the stage of rapid
development. The size of credit and credit quality have been effectively upgrade, but for the huge
market of rural housing construction there is no forming pattern of financial support. And there are no
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specific supporting laws and regulations to guide, plus banks loans to cities and large customers, as well
as the vast majority of counties following banking institutions are not lending. All led to rural areas’
loans only rely to rural credit cooperatives. To change the situation of the farmers general difficulty in
obtaining loans. Firstly, we must increase financial capital investment, while use fiscal policy actions to
attract social funds and enterprise funds to join. Secondly, we should through policy planning and
guidance, to organize the farmers to form cooperative housing and other forms, unified planning and
unified organization to attract the farmers’ building capital. Thirdly, enhance the rural financial
environment, exploring the financial deepening and absorb other social funds, particularly private
capital and foreign capital.
4 Financial support modes in villages’ house construction
4.1 Strong support for fiscal and financial
Finance and banking on the role of rural housing is divided into direct effects and indirect effects. Direct
effects include direct loans and grants. Rural housing direct loans are funded directly by the government,
loaning at reasonable interest rates and duration, with the purpose is to enable more farmers to be able to
purchase a house. Grants are primarily for low-income families or people with disabilities who can’t
afford for a house. Indirect effects refer to fiscal policy financing, which means financial in order to
strengthen macro-control function, to credit as a means to achieve specific policy objectives, directly or
indirectly to raise funds and use of funds paid activities, so that the leverage of financial investment into
full play, through part investment, interest subsidies, credit guarantees and tax breaks and other ways to
absorb the whole social investment.
4.2 Increase the intensity of commercial credit
As profit-maximizing financial enterprises, financial institutions issue mortgage loans to those who
require a reliable source of income guarantee, and ask for a higher loan interest rates. Farmers generally
difficult to achieve these conditions, so they are difficult to obtain credit support. To solve these
problems, various financial institutions should base on the principle of profitability, safety, liquidity,
according to their own operational characteristics, and actively explore and identify the entry point for
village housing, efforts to increase loans for rural housing industry. By deepening the reform of rural
credit cooperatives, vigorously fund the organization, make full use of the rural financial capital, could
serve to increase the flexibility of rural credit cooperatives, as well as the interest rate swap filled. The
central bank should make every effort to increase credit loans, and all of rural credit cooperatives should
try to run no collateral for small loans. At the same time, opening up banks to indirectly support the
provincial, city, county and local leading enterprises to establish bonding companies, which support
financing for residential development in villages and manage by market-oriented manner. The guarantee
company’s establishment and continuous improvement can solve guarantee loans and difficulties in
financing problem. Meanwhile, it can expand and intensify development of banking and financial means
to support rural development and strength. Improve the environment of residential investment and
financing, construction and improve the rural real estate at secondary mortgage market, effectively guide
investment to rural areas.
4.3 Norms to guide the development of private capital
Since the farmers lack of access to financial institutions support, private finance for rural housing
financing is an effective complement. Private finance is known as economic regulation of the “shock
absorbers”, which can avoid economic fluctuations on the financial impact. It flexible manner can be
effectively gather the social idle capital, which is formal financial institutions are unable to get. It also
can configure the funds for rural real estate, and ease the tense contradiction between supply and
demands of funds. In our rural areas, people have a very strong traditional thought, coupled with
economic strength is weak, the farmers used to save money and ask others to help them build a house
themselves. So, private financing can make more reasonable of regional funding allocate, and liquidity
more effective. An important form of involving private capital is organizing groups and proper guidance
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by the local government, unified planning and design, so that the farmers can form a support group
co-financing and mutually help you housing construction together. Meanwhile, government can
establish a variety of housing cooperatives and rural farmers housing fund to provide technical
assistance and appropriate financial support. These can greatly reduce the building costs and the
strengthening of financing. Private financing is a consensual contract market for financing deal, the
contract parties’ information is symmetry. As the lenders of money supply, have more comprehensive
and in-depth understanding of the housing project. So, it can help lenders make a rapid decision on
finance, as well as them monitoring the funds using on real-time, make the use of effective control of
funds.
4.4 Foster a listing of residential village enterprise
In a market economy conditions, and as household saving account for the dominant position, people
showed a diversified selection of investment instruments. Investors need not only the safety and
liquidity of band deposits, but also need high-risk securities. Listing of residential village enterprises can
not only strengthen them own strength and obtain long-term development, but also can more effective to
absorb the various types of funds. Securitization financing compared to the bank represented the
interests of indirect financing have a stronger constraint. This hard-bound in the binding mode of
financing mechanisms can better reflect the requirements of market economy, and enable the
rationalization of market allocation, while as whole economy is an important function of institutional
innovation. A large number of low-cost supplies of capital are undoubtedly the development of China’s
housing industry and rural housing must be addressed with. Under certain conditions, we can pack and
listing of some suitable residential village enterprise, through the stock market can raise funds for
construction. Strive to foster and recommend potential enterprises listing and financing rural housing is
a useful way to both the shortage funds enterprises and the urbanization process in China.
4.5 Fight domestic corporate bond financing
Development of securitization of residential company, at the same time, we should focus on improving
the construction and development of bond market. In particular, long-term bond market, which further
enrich the securitization financing channels. Bond issuance is an important means of corporate finance,
and which compared with other financing way, corporate debt financing costs are much lower, not only
lower than bank loans, but also equity financing. According to the principle of separation of investment
and financing, promote the villages’ real estate is an important force for economic growth, we should
greatly improve the status of their financing difficulties, of which one of the best way is to support these
enterprises to be financed by issuing corporate bonds. Fighting domestic corporate bond financing, we
can start from the unified national bond market, reform the current domestic corporate bonds issued by
quota system and the administrative examination and approval system, remove the unreasonable
restrictions on rural housing company, encourage more qualified enterprises to enter the bond market.
Innovate the bond types to achieve diversify of varieties of bonds, duration and risk structure. Widen of
bond market to meet different types of funding and investors. In addition, the liberalization of domestic
corporate bond circulation markets, on the one hand, we should standard bond market, and another, we
should establishment of OTC bond markets, strengthening the financing capacity of rural housing
business.
4.6 Explore other new financing channels
With the standardization of China’s financial market, foreign financial services and insurance companies
can enter the estate market more easily, which will accelerate the secondary mortgage market to build
and realize the securitization. Guide the capital market into the housing credit market, then use of
foreign and private capital, thus can greatly expanding domestic sources of consumer credit finance. A
line with China’s basic national conditions and can effectively address the current financing problems’
financing support model can help smooth development of China’s rapid urbanization. In addition, the
village housing industry can not develop without the strong support of policies and regulations.
Therefore, we should study and develop a range of villages housing policies and regulations, so that
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make the rural housing finance gradually regulate and rationalized.
5 Conclusion
The villages’ housing construction cannot deal with without monetary support, this paper access to a
large number of literatures, and analysis of financial support for the status and exiting problems of
villages’ housing construction in China, and sum up the principle of financial support and build a
financial support model.
References
[1]. Xu Ning, Zhang Bing. Take financial support as lever to build socialist new countryside. Social
scientists. 2006-03-026. (in Chinese).
[2]. Yan Yan, Yu Xiaofen. The apocalypse of American rural housing financial. 2003-09-032. (in
Chinese)
[3]. Lu Minfeng, Ma Yan. The new thoughts on promoting the process of urbanization by financial
support in China. Journal of Suzhou College of education. 2009-01. (in Chinese)
[4]. Li Boyang. Study on the model of housing finance in China. Capital University of economics and
business. 2005. (in Chinese)
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