Poverty alleviation through industrial development should be supported by inclusive finance

For China, industrial development is of great practical significance to tackling deep-seated countryside issues and achieving concrete outcomes in the battle against poverty.

Reducing poverty through industrial development means fostering sustainable industries in rural areas. It is aimed at obtaining endogenous capacity for sustainable development in rural areas and realizing the transformation from the poverty alleviation model of “blood transfusion” to “blood making”, in terms of economic development.

In recent years, China has carried out various poverty alleviation projects through industrial development and made remarkable achievements. According to the data released by the Ministry of Agriculture and Rural Affairs, in 2019, 92 percent of poverty-stricken families in the country have participated in industries that have been playing obvious leading roles in the poverty-relief campaign, and 67 percent of the people who have cast off poverty owe their better-off status mainly to industry-oriented assistance.

Nonetheless, there are some common problems. First, the pursuit of short-term performance leads to a mismatch of financial resources. Under the guidance of the short-term goal of poverty alleviation, some local governments tend to allocate funds directly to the targeted poverty-stricken families for that year, resulting in low fund coverage and a poor credit foundation. At the same time, China’s financial services still fall short in rural areas and they cannot meet the financial needs of the rural industrial economy. According to the data of the People’s Bank of China, China’s central bank, the number of bank branches for every 10,000 people in rural areas in 2018 was only 1.31, and the number of bank branches per village was just 0.24.

Unlike those countries that rely heavily on natural resources — such as oil and minerals — which have been highly industrialized and organized, many rural areas in China lack the ability to effectively manage their abundant products and land resources. Many mountainous areas and villages in China have contracted hills and woodlands on such a scale that it is not rare for an average household to own more than 10 acres of land. However, households in these areas are often unable to efficiently develop or monetize the rich resources they have. And it is difficult for poor areas to put forward their demands and requirements accurately, making it impossible to provide targeted knowledge and technology.

Given the situation of the industrial economy in China, here are some suggestions for winning the battle against poverty.

First, poverty alleviation through industrial development should be supported by inclusive finance. Efforts should be made to increase the construction of physical branches of financial institutions in rural areas and improve the accessibility of financial resources in poverty-stricken areas. Credit is the essence of finance. In the process of promoting inclusive finance, we should also emphasize the construction of a comprehensive credit information data network in rural areas.

Thus, a virtuous circle of bank loan repayments can be built. On the other hand, risk compensation funds can be set up through government financing, giving better play to the leverage role of government funds so as to guide and amplify the effects of bank loans.

Second, China should actively explore the innovation of industrial organization models, so as to improve the organization, scale, specialization and coordination of agricultural operations and production. In this process, problems concerning rural land circulation and scale of operation need to be addressed. Uncultivated, waste and idle plots with low productivity and utilization rate should be circulated in a centralized manner through transfer, subcontracting, equity participation, cooperation, leasing, trusteeship and other ways. By so doing, a moderate scale of land operation can be realized and guided for the labor division and the formation of a cooperation pattern for agricultural production.

Finally, science and technology should play a bigger role in making industrial development sustainable and targeted poverty alleviation effective. The Chinese government needs to link all related aspects, including government departments, research institutes and agricultural technology enterprises.

Through the government’s purchase of services, talents with high technical skills and rich experience can be recruited as special-term agricultural technicians in poverty-stricken areas. Meanwhile, this would help reveal the true demand of agricultural science and technology, so as to effectively match the supply and demand and form a huge impetus for farmers to increase production and income.

The author is an assistant research fellow at the Institute for Advanced Research at Shanghai University of Finance and Economics. The author contributed this article to China Watch, a think tank powered by China Daily. 

The views do not necessarily reflect those of China Daily.