“The Source of Flowing Water”: How Targeted Poverty Alleviation Helps China’s Rural Poor Access Credit

Yin Zhichao (尹志超)1, Guo Peiyao (郭沛瑶)2* and Zhang Linwan (张琳琬)3

1,3 School of Finance, Capital University of Economics and Business, Beijing, China

2 School of Economics, Beijing Wuzi University, Beijing, China

Abstract: Based on the China Household Finance Survey (CHFS) data of 2011-2017, this paper investigated the effects of China’s targeted poverty alleviation policy on rural credit access and amount using the “difference-in-differences” methodology. This study found that the targeted poverty alleviation policy increased the availability and amount of formal credit to poor households and reduced the proportion and amount of their borrowing through informal channels, and that the effects increased amid the policy’s implementation over time. This paper further found that the policy effects were more significant for China’s western regions, reflecting a positive role of targeted poverty alleviation in coordinating pro-poor finance across regions. Compared with poor counties, poor households from non-poor counties experienced a greater increase in their probability and amount of formal credit access, reflecting China’s approach of reducing regional poverty before targeting more precisely at individual poor households. This paper also uncovered that no significant “elite capture” effect had existed in the allocation of formal agricultural credit under targeted poverty alleviation, but extremely poor households experienced no significant change in their access to formal credit. While the targeted poverty alleviation policy has helped create a sound rural credit market, it should further improve access to formal finance for extremely poor households.

Keywords: targeted poverty alleviation, registered poor households, formal credit, informal credit, difference-in-differences (DID) model

JEL Classification Code: Q13, I28, O16, H43

DOI: 10.19602/j.chinaeconomist.2021.07.03