Len­ders urged to plow new fields

Aim is to re­vi­tal­ize ru­ral re­gions with more ac­cess to fi­nan­cial ser­vices

China Daily (Canada) - - BUSI­NESS - By YANG ZI­MAN yangz­i­man@chi­nadaily.com.cn

China is en­cour­ag­ing pri­vate en­ter­prises to ini­ti­ate set­ting up small and medi­um­sized ru­ral fi­nan­cial in­sti­tu­tions, sig­nal­ing the gov­ern­ment’s de­ter­mi­na­tion to re­vi­tal­ize the coun­try­side by fur­ther open­ing up the ru­ral fi­nan­cial in­dus­try to pri­vate cap­i­tal, ac­cord­ing to a re­port by Xin­hua News Agency. “The China Bank­ing Reg­u­la­tory Com­mis­sion is en­deav­or­ing to in­crease the pro­por­tion of pri­vate cap­i­tal in ru­ral fi­nan­cial in­sti­tu­tions,” a per­son who works for it told Xin­hua. “The move is to be car­ried out on two prin­ci­ples: giv­ing pri­or­ity to lo­cal in­vestors, such as lead­ing pri­vate en­ter­prises and ma­jor farm own­ers, and di­ver­si­fy­ing the stock struc­ture.”

Small and medium-sized ru­ral fi­nan­cial in­sti­tu­tions are es­tab­lished mainly through pri­vate in­vest­ment to fa­cil­i­tate the de­vel­op­ment of ru­ral ar­eas, farm­ers and agri­cul­ture. They are made up of sev­eral types of fi­nan­cial in­sti­tu­tions in­clud­ing ru­ral com­mer­cial banks, ru­ral co­op­er­a­tives and vil­lage banks, among oth­ers, serv­ing as an im­por­tant chan­nel for pri­vate cap­i­tal to en­ter the bank­ing in­dus­try.

China had 468 ru­ral com­mer­cial banks, 1,803 ru­ral co­op­er­a­tives and 1,071 county banks by the end of 2013, ac­cord­ing to the com­mis­sion’s statis­tics.

Ru­ral co­op­er­a­tives are the ma­jor credit provider, ac­count­ing for 70 per­cent of the loan bal­ance.

Ru­ral com­mer­cial banks, many of which trans­formed from ru­ral co­op­er­a­tives, held 6.3 tril­lion yuan ($1.04 tril­lion) in to­tal as­sets and 78.3 bil­lion yuan in after-tax prof­its by the end of 2012.

How­ever, the ru­ral fi­nan­cial in­dus­try re­mains the weak­est link in China’s fi­nan­cial re­form in spite of its wide­spread net­work.

Shang Fulin, the com­mis­sion’s chair­man, re­marked ear­lier that China’s ru­ral fi­nan­cial in­dus­try is bur­dened by a se­ries of prob­lems, in­clud­ing an im­bal­anced credit struc­ture, high de­mand out­run­ning in­suf­fi­cient sup­ply, the mis­place­ment of fi­nan­cial re­sources and a lack of co­or­di­na­tion among dif­fer­ent in­sti­tutes.

Len­ders of­ten have sec­ond thoughts con­sid­er­ing the mas­sive un­cer­tain­ties in agri­cul­tural pro­duc­tion, a busi­ness deeply sub­ject to weather con­di­tions. Worse still, farm­ers have few pro­duc­tion fac­tors that can be mort­gaged. As a re­sult, some of the loans meant to fa­cil­i­tate ru­ral de­vel­op­ment have gone to non-agri­cul­ture busi­nesses that eas­ily of­fer real es­tate as­sets as mort­gages.

More­over, ru­ral com­mer­cial banks have high non-per­form­ing loans, which stood at 61.2 bil­lion yuan by the end of 2013. The non-per­form­ing loan ra­tio was 1.73 per­cent, com­pared with 0.83 per­cent of ur­ban com­mer­cial banks.

“When the gov­ern­ment fully opens the ru­ral fi­nan­cial in­dus­try, it will not ask com­mer­cial fi­nan­cial in­sti­tu­tions to ful­fill po­lit­i­cal re­spon­si­bil­i­ties of fa­vor­ing agri­cul­tur­ere­lated bor­row­ers,” said Yi Xian­rong, a for­mer fi­nan­cial ex­pert at China Academy of So­cial Sciences. “Com­mer­cial in­sti­tu­tions can only op­er­ate ac­cord­ing to the de­mands of the mar­ket. Other­wise, risks are go­ing to build up in these in­sti­tu­tions, and so­ci­ety will even­tu­ally pay the price.

“On the other hand, the gov­ern­ment should al­lo­cate more in­vest­ment to fi­nan­cial in­fra­struc­ture con­struc­tion in ru­ral ar­eas, which is a ma­jor li­a­bil­ity of the lack­lus­ter de­vel­op­ment of the ru­ral fi­nan­cial sec­tor. Some in­dus­tries, re­gions, fam­i­lies and projects also de­serve spe­cial fi­nan­cial treat­ment, which is to be ini­ti­ated by the gov­ern­ment.”

Mean­while, the com­mis­sion is also in­ten­si­fy­ing its sup­port for vil­lage banks, ac­cord­ing to Xin­hua.

The anony­mous com­mis­sion em­ployee told the agency it plans to de­velop the cur­rent 1,071 vil­lage banks, both in op­er­a­tion and about to be opened, into spe­cial small com­mu­nity len­ders fo­cus­ing on the de­vel­op­ment of ru­ral ar­eas, farm­ers and agri­cul­ture.

Among the 987 vil­lage banks that have opened for op­er­a­tion, 145.5 bil­lion yuan had been lent to farm­ers and 182.5 bil­lion yuan to small and medium-sized en­ter­prises by the end of last year, tak­ing up 90 per­cent of the to­tal loans. Pri­vate cap­i­tal has taken up 71 per­cent of these banks’ to­tal stock.

For­eign cap­i­tal has also set its sights on the po­ten­tial of the loan short­fall in ru­ral ar­eas. Com­mon­wealth Bank of Aus­tralia, HSBC Bank (China) Co Ltd and Te­masek Hold­ings have opened or co-founded vil­lage banks through­out China since 2007.

PRO­VIDED TO CHINA DAILY

China had 468 ru­ral com­mer­cial banks, 1,803 ru­ral co­op­er­a­tives and 1,071 county banks by the end of 2013, ac­cord­ing to China Bank­ing Reg­u­la­tory Com­mis­sion statis­tics.

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