The Situation, Problems, Reasons and Solutions of Rural Ecological Compensation Financing

The establishment of a system of paid resource use and ecological compensation, predicated on the valuation of ecological resources, constitutes an unavoidable consequence of market-oriented reforms. Nevertheless, the financial mechanism employed by China for rural ecological compensation has reached an impasse, with an excessive reliance on public fiscal expenditures. Despite the efforts of researchers and practitioners, this issue remains unresolved. Consequently, the development and promotion of market-oriented, sustainable financing models, particularly in addressing market-based financing challenges for ecological compensation projects in China's underdeveloped and unevenly developed rural areas, is of significant theoretical and practical importance. This paper analyzes the current state and underlying causes of financing for China's rural ecological compensation mechanisms. The analysis is based on public goods theory, externalities theory, and property rights theory. From the perspective of aligning capital returns with risks, it proposes feasible financing solutions by integrating the Clean Development Mechanism (CDM) with mature capital instruments. The primary contribution of this study is the identification of market-based financing options for China's rural ecological compensation mechanisms, with the objective of enhancing the sustainability of their operation.