More than 30,000 Chinese rural credit co-operatives (RCCs) have finally come back into the black this year after 10 years of registering losses.

The China Banking Regulatory Commission (CBRC) said Monday in a press release that RCCs made an aggregate profit of 148 million yuan (US$17.8 million) in the first 11 months of this year, ending a streak of losses that started as early as 1994.

The commission attributed the reversal to a hefty rise in loans, substantial improvement in asset quality as well as progress in a cost-reducing campaign.

Wang Yuanhong, a senior analyst with the State Information Center, said a substantial pickup in demand for loans this year, thanks to the robust economic growth driven primarily by investments, has helped banking institutions improve interest incomes.

Strong demand and brisk sales have stretched capacity at a number of small factories in such production sectors as coal, steel, cement, glass and electricity. Many of these plants were left idle for a few years due to lack of demand.

"So it's not really a surprise," Wang said. "The entire banking sector is seeing improvement."

The RCC's total outstanding loans were measured at 1.75 trillion yuan (US$210 billion) at the end of November, a jump of 25.21 percent on a year-on-year basis.

Rapid increases in exports this year have also boosted profitability and borrowing needs of small businesses, which are the primary clients for RCCs, Wang said.

But he noted that a geographic imbalance still exists in the overall improvement of RCCs' profitability, which would hamper further growth of the sector.

Seventeen provinces reported profits for RCCs, with the total standing at 3.5 billion yuan (US$421 million).

"These provinces are probably those where strong industrial growth is being recorded, particularly if township enterprises, many of which are RCC borrowers, are doing well," Wang said.

A wide-ranging RCC reform package was announced earlier this year. Provincial governments, instead of the national financial authorities, will be responsible for the performance of RCCs.

That, analysts say, has also helped improve asset quality for these co-ops by reducing interference from local authorities.

The reform will shake both the property rights and regulatory schemes of the co-operatives, and will first be implemented in eight pilot provinces and municipalities.

(China Daily December 16, 2003)