Give Financial Reform a Boost in Rural Areas

China should press ahead with rural financial reforms to facilitate the construction of a new socialist countryside, a renowned financial expert, Qin Chijiang, said

"To substantially improve the overall financial service in rural areas, rural financial reforms must be accompanied by other supportive policies to advance comprehensive development of rural China," Qin, a deputy of the National People's Congress, told China Daily in an exclusive interview.

China's rural financial market has long been underdeveloped, especially when major State banks retreated from it in the late 1990s because of small business volume and high costs.

Official statistics show that while farmers accounted for more than half of the population, they were responsible for only 15 percent of the country's total bank loans and deposits. At the end of 2005, per capita borrowing among farmers amounted to 5,000 yuan (US$640), less than 10 percent of the amount borrowed in cities.

Inadequate supply of financial services has long troubled the development of China's rural economy, adding to the widening income gap between urban and rural areas.

The government has increasingly realized the urgency to build a system of rural finance that can stimulate jobs and growth.

"The past few years witnessed significant progress in the reform and development of rural finance," Qin, deputy secretary-general of the China Financial Institute, said.

The China Banking Regulatory Commission issued a regulation last year to encourage private investment in the rural financial sector.

Last month, the first village bank opened in Southwest China's Sichuan Province, marking the government's latest drive to provide farmers with easier access to small loans.

While recognizing the necessity to introduce new types of rural financial institutions, Qin stressed that the government should do more to revamp rural credit cooperatives (RCCs), now the backbone of rural finance.

Roughly, RCCs absorb 60 percent of deposits and grant 80 percent of loans in rural areas.

In 2003, the State Council initiated pilot reforms of RCCs, allowing them to reform their property right schemes according to regional conditions. As a whole, the RCCs managed to make their ends meet in the past two years.

But they remain debt-laden due to historical accumulation of bad loans.

"The government should consider tax cuts for all RCCs to boost their development," Qin said.

Given the low profitability of rural financial institutions, a cut in corporate income tax and business tax could improve their balance sheet, he added.

China has adopted tax cuts for RCCs only in some provinces that have carried out the pilot reforms.

"Legislation for rural finance is also a matter of urgency," Qin said.

The NPC deputy insisted that only a sound law on rural finance could ensure that financial firms would serve farmers and the rural economy effectively.

"The success of rural financial reforms hinges not on the size of financial institutions but the efficiency and quality of the financial service they provide," Qin said.

(China Daily March 7, 2007)