2008 Winner
Hutubi County, Xinjiang Uygur Autonomous Region
Innovations and Excellence in Local Chinese Government
Innovations and Excellence in Local Chinese Government

This program is a winner of the "Local Government with Best Sense of Responsibility" Award.




The Ministry of Civil Affairs' Rural Endowment Insurance System for Rural Areas allows farmers under age 60 to make contributions to personal pension accounts. On retirement, farmers then receive their principle plus interest. However, the System was flawed as the government could not guarantee the amount of funds that would be available at retirement and they did not inflation proof accounts. In addition, farmers lacked ready cash and had difficulty saving for the future.




Hutubi County, a "satellite" county of Urumqi, capital of the Xinjiang Uygur Autonomous Region, is one of the top five agricultural producers in Xinjiang. In early 1998, Hutubi launched an innovation that allows participants to use the insurance certificates they receive from their accounts as collateral for short-term loans (six months to three years). These loans are given at the normal bank interest rate and are available for agricultural production, children's education, and medical care.




Both farmers and the government benefit from the reform. Farmers can develop their ability to manage their money and create investment opportunities. Their accounts are no longer "reserve" accounts; they are instead dynamic multi-functional tools for loans, savings and investment. In addition, the government avoids depreciation of funds and is increasing its bank revenues through interest received on the short-term loans.




This innovation has demonstrated results in four ways.








1. The innovation inflation-proofed pension accounts. From 2002 to 2007, a total of 1937 households in Hutubi County were involved in the insurance system, 6764 insurance certificates (representing 77.79 percent of the total participants) were used as collateral for 10.8 million worth of loans. Since adoption of the reform, the annual yield on pension funds has increased to 8.14 percent, which exceeded the 5 percent annual interest rate previously agreed to by the government.




2. Participants augmented their income and diversified their financial investments. Statistics demonstrate that local farmers expanded the scale of their agricultural production through loans subsidized by pension funds and farmers' incomes increased by 300-400 Yuan (roughly 50 USD). For farmers who live in poverty, the program benefits are substantial as they can now draw money from the bank for urgent needs.




3. Farmers increased their participation. Government regulations which stipulate that only insurance participants can obtain bank loans have prompted more farmers to participate. Since the amount of a line of credit is determined by the face value of an insurance certificate, farmers have also increased the amount saved in their accounts.




4. The program increased trust and mutual understanding among farmers. Program provisions allow participants to obtain loans by using not only their certificates but also the certificates of others as collateral. This means that farmers on good terms with their relatives or neighbors can obtain larger lines of credit.




At present, this reform has been recognized as effective by the Ministry of Labor and Social Security and has been studied by scholars in China and abroad. A number of governments have also been interested in the results. For example, governments in both the Sichuan Province and the Inner Mongolia Autonomous Region are studying the innovation to determine if they will replicate it.




As the innovation is still a pilot program, it can be improved by:




  • Paying more attention to loan risk, borrower qualifications and loan purpose,
  • Standardizing the examination and approval systems of the management, investment, and supervision departments of the banks,
  • Ensuring that the government departments who deal with the program, work independently and cooperate with each other only when necessary, and
  • Diversifying the channels for pension fund use and capital operation.


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