To Explain Why AEO's Always Suffer from Credit Rationing in China by a Comprehensive Model

In this article, the interest rate and non-interest cost are brought into an analytical framework to model a synthetic credit rationing model, under market conditions of a formal finance and an informal finance sector. The research context concerns credit rationing towards agricultural economic organizations in China. Our research indicates that, in order to reduce the loan risk, the formal finance market uses a mechanism which is 'the interest rate - non-interest cost' to implement credit rationing. As a result, more and more agricultural economic organizations have been excluded because of the high credit risk. Existence of the informal financial sector may alleviate the credit rationing, but due to its non-official market status, it will inevitably cause higher financing costs of the agricultural economic organizations. This consequence may help to explain the reason why agricultural economic organizations are in economic difficulties in China.