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Article
Publication date: 29 October 2020

Rong Kong, Yanling Peng, Nan Meng, Hong Fu, Li Zhou, Yuehua Zhang and Calum Greig Turvey

In this study, the authors examined demand-side credit in rural China with the aims of understanding attribute preferences and the willingness of farmers to pay for credit.

Abstract

Purpose

In this study, the authors examined demand-side credit in rural China with the aims of understanding attribute preferences and the willingness of farmers to pay for credit.

Design/methodology/approach

The authors implemented an in-the-field discrete choice experiment (DCE) using a D-optimal block (6 × 9 × 3) design applied to 420 farm households across five Chinese provinces (Shandong, Sichuan, Shaanxi, Jiangsu and Henan) in the summer and fall of 2018. The DCE included six attributes including the interest rate, term of loan, type of loan, type of repayment, type of institution and mobile banking services.

Findings

Conditional and mixed logit results indicated a downward sloping credit demand curve with variable elasticity across regions. Provincial willingness-to-pay (WTP) indicators suggested that farmers were willing to pay a premium for long-term ( 0.03–0.687%) and low collateral credit loans ( 0.79–2.93%). Also, four of five provinces indicated a preference for loan amortization rather than lump-sum payment. Interestingly, in comparison to the Agricultural Bank of China (ABC), only farmers in Shandong, Sichuan and Shaanxi indicated a preference for rural credit cooperatives (RCCs)/banks and the Postal Savings Bank of China (PSBC). Another quite surprising result was bank services, in our case, access to mobile banking did not appear to induce WTP for agricultural credit. While conditional and mixed logit regression coefficients were similar (and therefore robust), the authors found that there was substantial heterogeneity across attribute preferences on term of loan, type of loan and amortization. Preferences for type of lender and mobile banking were generally homogenous. This result alone suggested that lenders should consider offering a suite of credit products with different attributes in order to maximize the potential pool of borrowers. While there were some differences across provinces, farmers appeared to be indifferent to lenders, and it did not appear that offering banking services such as mobile banking had any bearing on credit decisions.

Research limitations/implications

This paper presents a first step in using in-the-field choice experiments to better understand rural finance in China. Although the sample size satisfies conventional levels of significance and rank conditions, the authors caution against attributing results to China as a whole. Different provinces have different institutional structures and agricultural growing conditions and economies and these effects may differentially affect WTP for credit. Although by all indications farmers were aware of credit, not all farmers, in fact a minority, actually borrowed from a financial institution. This is not unusual in China, but for these farmers, the DCE was posed as hypothetical. Likewise, the study’s design was based on a generic credit product typical of rural China, and the authors caution against making inferences about other products with different attributes and risk structures.

Social implications

This study is motivated by the rapidly changing dynamic in China's agricultural economy. With specific reference to new laws and regulations about the transfer of land use rights (LURs), China's agricultural economy is undergoing significant and rapid change which will require better understanding by policy makers, lenders and practitioners of the changing credit needs of farmers, including the new and emerging class of commercial farmers.

Originality/value

To the best of the authors’ knowledge, the authors believe that the result provided in this paper present the first use of in-the-field DCE and are the first to be reported in either the English or Chinese literature on rural credit product design.

Details

China Agricultural Economic Review, vol. 13 no. 2
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 21 January 2020

Yanling Peng and Rong Kong

The purpose of this paper is to investigate the economic relationship with recent changes in China’s land use policy and rural development through innovation and entrepreneurship.

Abstract

Purpose

The purpose of this paper is to investigate the economic relationship with recent changes in China’s land use policy and rural development through innovation and entrepreneurship.

Design/methodology/approach

The first issue of economic importance is in understanding the market value of land use rights (LUR) transactions. To examine this, the authors build an argument around the idea of economic and marginal rents from Ricardo. The second issue relates to the extent by which deepening the rural financial landscape by allowing the mortgaging of LUR will promote and advance much needed entrepreneurial activity. To explore this issue, the authors draw on Schumpeter. The empirical contribution is based on a survey of 1,465 farm households in Gansu, Henan, Shaanxi and Shandong provinces.

Findings

In an endogenous Two-Stage Least Squares model, the authors find a positive and significant relationship between a willingness to mortgage LUR and entrepreneurship, which suggest that the new policy may well meet that objective. However, the authors do not find that entrepreneurs alone will have a willingness to mortgage LUR; non-entrepreneurs – traditional farmer types – would also be willing to mortgage LUR, but with a caveat that either group already has a disposition or demand for credit.

Originality/value

The value of the analysis is to provide an evidence to understand the market value of LUR transactions and to study the relationship between mortgage of LUR and entrepreneurial activity.

Details

Agricultural Finance Review, vol. 80 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 5 September 2016

Ying (Jessica) Cao, Calum Turvey, Jiujie Ma, Rong Kong, Guangwen He and Jubo Yan

The purpose of this paper is to investigate whether negative incentives in the pay-for-performance mechanism would trigger loan officers to strategically reject potentially good…

Abstract

Purpose

The purpose of this paper is to investigate whether negative incentives in the pay-for-performance mechanism would trigger loan officers to strategically reject potentially good loans. If so, what is the feasible solution to alleviate the problem.

Design/methodology/approach

A framed field experiment was conducted to test loan decision behaviors using loan officers from Rural Credit Cooperatives in Shandong, China. A 2 by 2 between-subject design was adopted to generate variation in incentives and prior information about credit risks.

Findings

Results showed that loan officers did ration credit by rejecting more loans when facing risks of personal income loss. However, providing risk information about the application pool boosted the approval rate and offset the behavioral responses by a roughly same magnitude.

Research limitations/implications

Findings in this study suggest that certain institutional settings can result in credit rationing via strategic loan misclassification. Further, information sometimes generates similar effects as those costly incentives or mechanisms that are not implementable in practice.

Originality/value

This study adopted an innovative monetized experimental design that allows researchers to examine the (otherwise unobservable) trade-offs between Type I and Type II error in loan misclassification as incentives change. In addition, an anchoring prior information treatment is used to solicit the relative power of almost costless information and costly monetary incentives, and to point out a potentially feasible solution.

Details

Agricultural Finance Review, vol. 76 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 5 February 2018

Yasir Mehmood, Kong Rong, Muhammad Khalid Bashir and Muhammad Arshad

The purpose of this paper is to empirically investigate the effect of partial quantity rationing of credit on the technical efficiency of dairy farmers in the Punjab province of…

Abstract

Purpose

The purpose of this paper is to empirically investigate the effect of partial quantity rationing of credit on the technical efficiency of dairy farmers in the Punjab province of Pakistan.

Design/methodology/approach

Prior to the field survey, the authors constructed a theoretical model for clear identification of partial quantity rationed dairy farmers. Data from 154 dairy farmers were collected that represented three districts of the province. The collected data were analyzed in two stages: first, the efficiency level of dairy farmers was estimated using a stochastic frontier approach; second, the authors employed an inefficiency-effects model to estimate the effect of partial quantity rationing of credit on technical efficiency.

Findings

The results revealed that education level of the household head, cross-breed and imported cattle, and electric chaff cutter, all had significant positive impacts on technical efficiency, followed by diversified sources of income. Conversely, the analysis of our key variables, interest rate on principal amount and partial quantity rationing of credit had significant negative effects on the technical efficiency of dairy farmers in selected districts of the Punjab province in Pakistan.

Originality/value

The study will be an important contribution to the existing credit constraints and technical efficiency literature and will particularly help the rural financial institutions in terms of approving the loan amount according to the actual requirements of the borrowers. The study’s findings and subsequent recommendations will be useful for policy makers in achieving the actual production level, bringing down the poverty levels and ensuring food security in the country.

Details

British Food Journal, vol. 120 no. 2
Type: Research Article
ISSN: 0007-070X

Keywords

Article
Publication date: 18 October 2011

Yi Lin and Sifeng Liu

This paper seeks to investigate the roles of small and large projects in the development and evolution of a commercial company and why companies with a history of taking on large…

Abstract

Purpose

This paper seeks to investigate the roles of small and large projects in the development and evolution of a commercial company and why companies with a history of taking on large projects tend to eventually fail with large projects.

Design/methodology/approach

In terms of small and large projects, analytic models are established to: describe investors' behaviors; depict the dynamics between CEOs and their boards of directors; and reveal how profit ceilings exist for large projects.

Findings

After making the concepts of small and large projects precise, the paper establishes several analytic models for the investigation of the behaviors of various market participants. Then, it develops an explanation for why some decision makers like to take on large projects and why most new startups fail because of a lack of funds. A theory is given to show how investors value small projects more than large projects and why the current trend of moving manufacturing operations from industrialized nations to third world countries does not seem reversible in the foreseeable future, as long as international transportation costs stay low and the global economic system stays open and competitive. Among other results, it is also shown that: the higher the level the CEO's initial ability is, the more likely he would initiate and manage small projects, and the more labor effort he will devote to these projects; the CEO's additional effort spent on the small projects helps him gain non‐pecuniary benefits, which he can use to gain additional bargaining power over the board; to realistically maximize his private utility, the CEO would spend more of his time and effort on small projects; each large project has a glass ceiling for its maximum level of profits; companies taking on large projects cannot afford to devote much of their scarce resources to expand their market share and appearance; and to increase their profit potential, these companies have to control their spending so that their profit can be maximized by lowering their unit selling price ps; for small projects, the profit potential for the company is unlimited.

Originality/value

This work is the first to employ models of human behaviors to research the interactions and dynamics between projects of different scales. It provides a theoretically reliable distinction between small and large projects.

Details

Kybernetes, vol. 40 no. 9/10
Type: Research Article
ISSN: 0368-492X

Keywords

Article
Publication date: 11 January 2013

Andy K.D. Wong and Rong Zhang

This paper aims to identify the challenges of Hong Kong and overseas developers in project management when undertaking real estate projects in China, and then focuses on how to…

2421

Abstract

Purpose

This paper aims to identify the challenges of Hong Kong and overseas developers in project management when undertaking real estate projects in China, and then focuses on how to mitigate and solve the problems. The proposed solution is about a concept of using the IT tool “web‐based construction project management system” (WPMS) to help assuring projects success in China. The study reported in this paper focuses on how to implement WPMS to manage construction projects in China considering the overall situation, limitations and Chinese culture.

Design/methodology/approach

Case studies and interviews were adopted to identify the main reasons why experienced Hong Kong developers have apparently been outperformed by the capital‐deprived local developers in China. SWOT was applied to analyse project failure factors. Afterwards, 49 web‐based construction project management software systems were reviewed to identify their features, their client expectations, the technology propagation modes, and the most emphasized functions in the construction stage. An in‐depth case study was adopted to test the hypothesis that web‐based construction project system could help Hong Kong developers to properly manage their projects in China.

Findings

Cooperation and coordination difficulties among participants caused by long geographical project distance and remote management control were identified to be the main causes of project failure. Web‐based construction project management system was proved to be efficient and effective in cross region project coordination and monitoring. Since property development business is a continuing and non‐one‐off activity, the investment of a tailor made WPMS is really good value for money. Concerning the low readiness of business partners in China, an encouraging pattern with more self‐incentives should be considered for achieving a win‐win‐win situation as an essential tactic as proposed in this paper.

Research limitations/implications

How to evaluate the benefit of using WPMS in quantitative method remains a challenge. Future research could compare the project with WPMS and without WPMS.

Practical implications

The case study of the application of a tailor‐made web‐based project management system (named ICPMS) by one of the major developers in Hong Kong has demonstrated that the headquarters in Hong Kong is able to get timely first hand project information, facilitating timely decisions and ensuring project success. Thus, the adoption of WPMS is a worthwhile investment for overseas developers undertaking real estate development projects in China.

Originality/value

This paper puts forward the concept of overseas developers using WPMS to help assure project success in China. Chinese culture and other limitation factors were considered for the first time in WPMS implementation in the construction industry. How to make the implementation of WPMS to successfully overcome such barriers is illustrated based on this empirical study.

Details

Construction Innovation, vol. 13 no. 1
Type: Research Article
ISSN: 1471-4175

Keywords

Article
Publication date: 8 May 2009

Jaclyn D. Kropp, Calum G. Turvey, David R. Just, Rong Kong and Pei Guo

This paper aims to clarify the relationship between wealth and trustworthiness with the goal of understanding why micro‐lending institutions grant loans to poor individuals…

1140

Abstract

Purpose

This paper aims to clarify the relationship between wealth and trustworthiness with the goal of understanding why micro‐lending institutions grant loans to poor individuals countering well‐known models of credit markets and credit rationing, such as those proposed by Stiglitz and Weiss. Micro‐credit markets appear to be based on two conjectures: the poor are trustworthy, and their willingness to pay for credit is relatively high.

Design/methodology/approach

The paper simulates trust‐based lending in an experimental setting to determine whether the conjecture that the poor are trustworthy is plausible. By conducting the experiments in the USA, a wealthy developed country, and China, a developing country where formal micro‐finance institutions have not established a visible presence, it is possible to test the conjecture and draw cross‐cultural comparisons.

Findings

The paper finds that while the absolute level of family income had no significant effect on repayment behavior, US borrowers that perceived themselves as having a family income that was relatively lower than other US households repaid at higher rates. Therefore, evidence was found that trustworthiness might be a function of perceived relative wealth or social status rather than the absolute level of wealth or income.

Research limitations/implications

The research results may be difficult to generalize because of the experimental approach and use of students as participants.

Practical implications

The paper includes implications for the administration of micro‐credit loans in China and other developing nations.

Originality/value

This paper experimentally tests a conjecture which appears to be the foundation of micro‐credit markets.

Details

Agricultural Finance Review, vol. 69 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 22 November 2011

Rong Kong, Calum G. Turvey, Guangwen He, Jiujie Ma and Patrick Meagher

China frequently suffers from weather‐related natural disasters and weather risk is recognized as a source of wide‐spread systemic risk throughout large swaths of China. During…

1144

Abstract

Purpose

China frequently suffers from weather‐related natural disasters and weather risk is recognized as a source of wide‐spread systemic risk throughout large swaths of China. During these periods farmers' crops are at risk and for a largely poor population few can afford the turmoil to livelihoods that goes along with drought. The purpose of this paper is to investigate the willingness of Shaanxi and Gansu farmers to purchase weather insurance.

Design/methodology/approach

This paper is based on surveyed results of 890 farm households in Shaanxi and Gansu provinces. The survey was designed specifically to extract willingness to pay for weather insurance. Factor affecting willingness to pay are explained using linear regression.

Findings

The authors find strong evidence that the demand for drought insurance is downward sloping and also believe from the analysis that the demand is fairly elastic. This suggests that price matters and the results suggest that in order for wide spread adoption of weather insurance farmers will require a substantial premium, perhaps in the order of 80 per cent, as is being applied to current crop insurance initiatives. The authors find, as expected, that crop producers would be willing to pay more for insurance than livestock producers, but also find, as one would expect, that the key indicator is risk. Using a Pert distribution, the authors constructed from information gathered from farmers the expected values and standard deviations of gross revenues and yields of the most prominent crop and constructed the coefficient of variation. It was found in both cases that the higher the CV the greater the willingness to pay.

Originality/value

The authors believe that this is the first willingness‐to‐pay study of weather insurance uptake in China. The authors used a unique “experimental” design and investigation technique to determine weather insurance demand.

Details

China Agricultural Economic Review, vol. 3 no. 4
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 11 May 2010

Calum G. Turvey, Rong Kong and Xuexi Huo

The purpose of this paper is to investigate the economic significance of informal borrowing between friends and relatives in rural China. Guided by an economic model of…

2429

Abstract

Purpose

The purpose of this paper is to investigate the economic significance of informal borrowing between friends and relatives in rural China. Guided by an economic model of household‐production interactions, the paper provides results from a survey of over 1,500 households including general linear model and logistic regression results. The paper finds evidence of a “small farm bias” in the use of informal credit, but the paper cannot generalize this to credit rationing as a matter of course. In part, it is believed that a preference for informal borrowing is related to some forms of credit rationing, spillover effects and collateral as some literature suggests, but the results suggest that by no means are these mutually exclusive or exhaustive.

Design/methodology/approach

This paper uses regression techniques based on 1,557 farm household surveys gathered by the authors in Shaanxi, Gansu and Henan Provinces in 2007 and 2008.

Findings

The paper argues that informal lending amongst friends and relatives cannot be dismissed as a significant economic factor in the financing of China's agricultural sector. A small farm bias in formal lending is indicated by the results, but there are many factors other than credit rationing which affect a households' decision to borrow informally.

Research limitations/implications

The research is limited to the survey data used. China's agricultural economy is too large to assert that the informal‐formal relationships described herein are general, even though the results are supported by other research.

Practical implications

The paper makes the case that the study of agricultural finance in China should include informal lending as part of any credit study. In addition, the paper argues that the use of the term “informal lending” should not generally group familial lending with other forms of interest‐bearing loans such as pawn shops or money lenders.

Social implications

China's rural credit needs are huge and many farmers do not have access to formal credit. This paper argues that the strength of trust relationships between friends and family is sufficiently high that nearly 60 percent of all credit outstanding is between friends and relatives at zero interest rates.

Originality/value

This, it is believed, is one of the first comprehensive studies on informal lending in China.

Details

China Agricultural Economic Review, vol. 2 no. 2
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 30 January 2009

Calum G. Turvey and Rong Kong

The purpose of this paper is to investigate the relationships between business risks and credit choices of 400 farm households surveyed in Shaanxi province in October 2007 in the…

1413

Abstract

Purpose

The purpose of this paper is to investigate the relationships between business risks and credit choices of 400 farm households surveyed in Shaanxi province in October 2007 in the Yangling district. More specifically, this paper investigates whether or not rural farm households in China balance business risks from agricultural production with financial risk from the use of debt.

Design/methodology/approach

The data were collected through a survey of 400 farm households in Shaanxi province conducted in October 2007. Four separate regressions are run using a credit measure as the dependent variable and measures of profitability, risk, risk aversion, and demography, and debt source (formal versus informal lending) as independent variables.

Findings

The model shows evidence of risk balancing. That is, there is strong evidence that Chinese farmers reduce credit use and financial risk, as business risks increase.

Practical implications

The results suggest that Chinese policy makers could encourage the use of finacial leverage and prudent debt use by offering risk reducing programs such as crop insurance, weather insurance, or price insurance.

Originality/value

This paper uses a unique survey form to collect production risk data as well as gather information on credit use and sources. Data were collected so that risk measures could easily be computed using a triangular distribution. Furthermore, this is believed to be the first empirical validation of the risk balancing hypothesis.

Details

China Agricultural Economic Review, vol. 1 no. 2
Type: Research Article
ISSN: 1756-137X

Keywords

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