The opening of a rural bank by a primarily foreign lender gives
hope to the great number of small rural businesses in the country,
marking the government's latest drive to provide farmers with
easier access to small loans.
In mid-December, HSBC, Europe's largest bank, opened a wholly
owned subsidiary in rural Suizhou, in central China's Hubei
Province. Other significant foreign lenders including New
York-based Citigroup and Asia-focused bank Standard Chartered are
preparing to open rural banks as well.
The establishment of village banks will help meet farmers'
financial needs by providing loans to agriculture companies, local
businesses and individuals.
Realizing the urgency of building a system of rural finance that
can stimulate growth, the Chinese government has pledged to
introduce new types of rural financial institutions and reform
rural finance.
"To improve overall financial services in rural areas, we will
continue to carry out rural financial reforms and introduce more
types of financial institutions to advance the comprehensive
development of rural China," said Jiang Liming, vice-director of
cooperative finance supervision department with the China Banking
Regulatory Commission.
The country's rural financial market has long been
underdeveloped, especially since China's major State banks
retreated from rural finance in the late 1990s because of high
costs and small business volumes.
Currently, the main financial sources serving the rural economy
are policy-oriented Agricultural Development Bank of China,
Agricultural Bank of China and more than 30,000 rural credit
cooperatives.
CBRC statistics show that farmers were responsible for only 15
percent of the country's total bank loans and deposits even though
they account for more than half of the country's population.
At the end of 2006, per capita loans available in rural areas
were around 5,500 yuan, compared with nearly 40,000 yuan in
cities.
Villages account for less than one-sixth of all bank branches
around the country, and there are just 1.26 outlets on average
available to every 10,000 people in rural areas compared with two
in cities.
The inadequate supply of financial services has long troubled
the rural economy's development. The government has stepped up
efforts to reform rural finance and build a system that can
stimulate development.
The CBRC issued a regulation to encourage private investment in
the rural financial sector in 2006.
And the government launched a pilot scheme, which was planned in
six provinces and autonomous regions including Hubei, Jilin,
Sichuan, Qinghai, Gansu and Inner Mongolia, encouraging
individuals, private companies and all financial institutions to
get involved in rural financing.
"The past few years witnessed significant progress in the reform
and development of rural finance," Jiang said.
CBRC statistics show that by the end of June 2007, there were
111,302 financial outlets in rural China, accounting for 57 percent
of the country's total.
The government also lowered the rural banking threshold at the
end of 2006. The registered capital threshold was lowered to 3
million yuan for banks in counties and 1 million yuan in villages
and towns.
Last year, tens of village banks, with the Huimin village bank
in Yilong County of Sichuan Province as the first, were approved by
the CBRC to open for business in the pilot provinces.
China Postal Savings Bank, which was established last year, is
also expected to play a significant role in serving the rural
areas.
While recognizing the necessity of introducing new types of
rural financial institutions, experts said the government should do
more and offer a supportive policy for rural finance.
The low profitability of rural financial institutions has
hampered the development of rural finance.
Experts said a cut in rural financial institutions' corporate
income tax and business tax would help them improve their balance
sheets.
They also suggested legislation for rural finance, saying a
sound law could help ensure rural financial institutions provide
quality financial services while serving rural businesses
effectively.
(China Daily January 10, 2008)
