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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 550 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 551 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 552 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 553 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) 554