Are Farmers Ready for the Stock Market?

Recently, the China Securities Regulatory Commission conducted a survey on rural residents’ demand for investment through securities companies.Items covered by the survey are the depth of the farmers’ desire for the investments, areas where they are much wanted, and the services dealers are able to offer to rural investors. Dealers are very optimistic about this idea.

This news caused a great stir. But of fi cials with the commission immediately claimed the survey was just part of a study on rural fi nance and they were not formalizing policies to develop securities brokerage services in rural areas. But debate on the feasibility of the idea on the Internet is heated.

A survey on news portal Sina.com on the day the news broke showed 70.9 percent of 23,551 respondents opposed this idea, while 23.3 percent were in favor and 5.9 percent were undecided.

Most people believe the time is not yet right for developing securities brokerage services in rural areas. They believe the stock market is highly risky and farmers,who commonly have little appreciation of risk, would probably suffer from huge losses.Meanwhile others say the move, if launched,will help in offering necessary fi nancial services. If securities regulators took the trouble to develop farmers’ awareness of investment and risk avoidance, it would be a good chance to cut back huge capital shortages in rural areas and push forward rural development.

The Green Paper on China’s Rural Economy, issued by the Chinese Academy of Social Sciences, estimates in 2010 Chinese farmers’ annual per-capita net income will exceed 5,500 yuan ($805). Today, the price of the cheapest stock on the Chinese market is 3.59 yuan ($0.56) apiece. Since the required lowest volume of stock trading is 100 shares per transaction, the threshold for investment in China’s stock market is 359 yuan ($56).

Satisfying farmers

Chen Ningyuan (Oriental Morning Post): It’s no exaggeration to say China has the largest number of stock investors and the nation is developing unprecedentedly strong awareness of investment and wealth management.

By the end of 2009, the number of investor accounts in China’s Shanghai and Shenzhen stock exchanges had topped 140 million. We don’t know whether those who opened accounts were urban or rural residents. All the same, most outlets of securities companies are in urban areas. Shanghai, for example, has nearly 500 securities brokerage outlets to serve its 20 million residents.In central and western regions, there may be not even one in the whole of a county.

China’s stock market is only 20 years old, but the market value has increased 120 times. By the end of 2009, China had become the world’s second largest stock market in terms of market value. The amount of funds raised through initial public offerings on the Chinese market ranked the world’s first as early as 2006 and remains so.

No one can now afford to ignore China’s stock market. In the past, investors all focused on the U.S. stock market, but now the Chinese market has attracted a lot of attention.

Although the renminbi (yuan) is not convertible on capital accounts, it has not prevented China’s stock market from becoming an investment heaven worldwide following the recent global financial crisis.Foreigners, either from urban or rural areas,can invest in China’s stock market through the qualified foreign institutional investor program. Why can’t rural Chinese residents do the same thing?

As China’s stock market has never put investors’ interests first, it falls short of a developed system designed to protect investors’ rights and interests, particularly small investors. As a result, insider trading is rampant. But this is not a reason to deny rural residents’ access to securities investment.

Rural residents are not born to be poor investors. Their contribution to China’s progress is no less than urban residents’.While urban residents can enjoy all kinds of convenience in the stock market, they also need them.

Rural residents are not incapable of making investments, but there are not enough channels for them to do so. This is the biggest bottleneck facing the development of securities brokerage services in China’s rural areas and also the biggest block to any ruralfriendly projects developing.

Chen Lanhua (Hainan Daily): Since the mid-1990s, state-owned commercial banks have begun to adopt strategies that center on cities and big enterprises. County-level financial institutions all cut their branches and credit loan services went to the big cities. As a result, rural fi nancial services gradually withered.

When farmers have limited access to regular fi nancial support for production and living, illegal fi nancial operations fi nd their way to rural areas. Securities investment is risky for farmers, but at least it will not drive them bankrupt and is better than farmers becoming involved in illegal fi nancial operations.

The development of securities brokerage services in rural areas is also helpful to stimulate farmers’ passion for financial investment. Later they will develop demand for other fi nancial products.

Yu Fenghui (Jiangnan Times): People are opposed to the idea of “developing securities brokerage services in rural areas” mainly because they do not believe in China’s stock market that operates under loose regulation. Urban residents have suffered too much from the problematic market in the past two decades and they don’t want to see their rural compatriots repeating the painful experience.

But, I believe, vast rural areas are extremely short of fi nancial products, and rich farmers’ investment awareness is growing.

Of course, the first step forward should not be too big. First, securities brokerage outlets can be set up in rich townships and villages, focusing on those who make big money. The important thing is to strengthen education on risk prevention in the stock market. Maybe it will be more dif fi cult to do than in the cities, but it’s a must.

Lao Liang (www.cnstock.com):Giving farmers broader access to securities investment will boost private investment.More importantly, farmers will be no longer limited to conventional methods of saving money. What they pass on to their offspring now is no longer bank deposits and houses,but negotiable notes.

The stock market is risky, so investors must be cautious and they need to be responsible for their own losses. But by no means should they be cut off just because it is risky.A good investment concept matters a lot.

Don’t cheat farmers

Pi Haizhou (Beijing Times): Different from government incentive policies for farmers to buy electric household appliances and vehicles, which can bring tangible bene fi ts,rapid development of securities brokerage services in rural areas is very likely to harm farmers’ interests if launched now.

Many farmers, even those doing manual jobs in cities, don’t have basic wealth management knowledge. Usually the least well-off people need channels to increase the value of their wealth the most. But China’s stock market is not an ideal place for farmers to invest their money. It is still a casino-like market, featuring aggressive fund-raising by listed companies and losses for most investors. It is widely said only 10 percent of stock investors in China make profits, 20 percent can break even and 70 percent suffer losses.

Guiding farmers into such a high-risk market is not wise. After all, farmers don’t only lack necessary fi nancial knowledge but also risk-resistance capacity. In a speculative stock market, farmers are more likely to lose their money than urban residents. If they get stuck in the quagmire of failed investment attempts, not only do their dreams of becoming rich evaporate but also normal agricultural activities will be adversely affected. In these cases, the program would profoundly hinder the country’s interests.

Of course, we are aware many farmers have already become investors in the stock market. It has been a long time since wellto-do farmers traveled to cities to buy stocks.But this situation can’t justify the policy of encouraging farmers to invest in stocks, even if such a policy could facilitate investment by this group of farmers.

Farmers who come to cities to buy stocks are better-off with an amount of financial risk-resistance capacity and some knowledge of securities investment.Therefore, they won’t necessarily lose their money. Even if they did lose money,it wouldn’t affect their lives. However, a stock market next door would attract both the well-off and poor.

Zeng Ruoyu (www.chinavalue.net):Besides providing an investment option,another important function of China’s capital market is to allocate resources. For most of the time, China’s capital market hasn’t fulfilled this function well since capital has failed to flow into the most capital thirsty sectors while big state-owned-enterprises,which already have more than adequate capital, occupy the majority resources.

Overall, China’s rural economy is underdeveloped. The majority areas of the countryside in China’s central and western regions have suffered from insufficient government financial support for a long time. The construction of capital infrastructure and development of township enterprises in rural areas both badly need capital injections.

But developing securities brokerage services in rural areas would only divert financial resources away from alreadybackward rural areas, which will harm rural development and turn out to be a wrong policy.

Zhao Guangrui (www.gmw.cn): We know in some countries as many as 60 percent of adult farmers hold stocks, but it doesn’t work that way in China. Stock markets in those countries are closely monitored according to complicated laws and regulations and many stocks have the potential of high returns. But that is not the case in China,where stock market regulation is loose and stock prices are often manipulated by a small number of people.

In such a badly regulated market, stock prices are largely uncertain. It wouldn’t be too late to develop securities brokerage services in rural areas when China’s stock market becomes much more developed and possesses absolute investment value.

People should invest in the stock market with their spare cash. Even if there are losses, basic living won’t be compromised.Chinese farmers generally have low incomes and only small savings, which they need for building new houses, paying for medical care or their basic living when they are old.They have very little money to invest in the stock market.

With low living standards, farmers in China are entitled to more care and assistance from society instead of highly risky investment products. ■

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