In an effort to realize top policy makers' ambition to build a modern rural financial system, the nation's financial regulators are working on detailed policies to boost financial input into the countryside, China Business News reported on Wednesday.

Speaking to the newspaper, an official from the Ministry of Finance said that the ministry's taxation reform department will work with the State Administration of Taxation on a series of tax preferential policies in the rural areas. He added that several government agencies have already put forward policy suggestions even before the latest party session was held.

The third plenary session of the 17th Communist Party of China Central Committee concluded on Sunday, and has brought up several new reforms intended to boost rural development. It also set the direction for establishing a modern rural financial system.

Another official from the China Banking Regulatory Commission confirmed the agency has been studying policies related to rural finance and has submitted a series of policy drafts to the central government. He believed that these policies will be released at the right time.

At present, of all rural financial institutions, only rural credit cooperatives enjoy preferential taxes. These include a business tax as low as 3 percent, exemptions from income tax in central and western regions, and half-exemptions for eastern regions.

According to the Finance Ministry official, in order to be fair, all institutions participating in rural financial business, including the Agricultural Bank of China and new types of rural financial institutions, are supposed to receive the same preferential policies.

In addition, the question of how to steer more funds into rural areas and retain these funds is also thought to be the focus of the rural reform. The paper quoted an official from the Banking Regulatory Bureau of Sichuan as saying that due to the low profit margin and high uncertainties in agricultural production, financial institutions are traditionally not attracted to rural areas.

To solve this problem, the official said it would be necessary to set a bottom line of loan-to-deposit ratio in rural financial institutions, or to require those reluctant to lend to buy special agricultural development bonds to channel the money back into rural production.

(China Daily October 16, 2008)