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Wider Channels for Investors Heading into China's Rural Financial Market

More investment will find its way into China's rural financial market as China's banking regulators plan to promulgate new rules on the mergers and acquisitions of small and medium-sized rural financial institutions.

In a written speech to the fourth annual conference of China financial experts, Vice Chairman Jiang Dingzhi with the China Banking Regulatory Commission (CBRC) said that guidance would be given this year to broaden investors' access to rural financial markets.

Current restrictions on investment caps, localities and venture capital financing channels would be loosened for banking and non-banking financial institutions to merge with, acquire or strategically invest in small and medium-sized rural financial institutions, Jiang was quoted as saying by the Shanghai Security News on Monday.

Under the current regulation, any single corporation and its related companies should possess no more than ten percent of the total stakes of a rural banking institution.

He also said that the commission would continue to aid rural financial reform by "steadily" advancing shareholder reforms to diversify the ownership of rural financial institutions.

CBRC data show that by the end of 2007, combined assets of China's small and medium-sized rural banking institutions nationwide amounted to 5.6 trillion yuan (US$787.6 billion), up from the 2.2 trillion yuan in 2003. They issued 1.2 trillion yuan in loans to more than 300 million farmers from 78.17million households, up from 400 billion yuan in 2003.

To be eligible for listing, the rural banking institutions mustensure a capital adequacy ratio of no less than 8 percent and a non-performing loan ratio of no higher than 10 percent.

Apart from the shareholder reform, the government also resortedto what was called the "new-type" rural financial institutions toease the chronic capital shortage in rural China that has aggravated the imbalance between the rural economy and the rest ofthe economy.

Unlike the traditional collective-owned rural credit cooperatives, which has been the major financing channels for farmers, these new institutions in the form of rural and country banks, finance companies and rural mutual cooperatives are privately-owned and established with a clear-cut shareholding structure.

After a trial run in the Inner Mongolia Autonomous Region and Sichuan and four other provinces since late 2006, the experiment was broadened last year as 31 such institutions were established. This year, another 100 are to be set up across the country.

The government also hoped to activate the stagnant rural financial market by bringing in overseas investors. Last December, London-based HSBC opened its first county branch in southwestern Chengdu, becoming the first foreign bank to enter China's rural financial market.

Previous reports said that the bank had planned to open six to ten more branches in the Chinese interior this year. Some other leading foreign banks, such as Citibank and Standard Charter, havealso shown their interest in the rural financial market.

Although rural China has been viewed as more of a potential market amidst the country's robust economic expansion, there is still an impoverished rural population of over 20 million, even though it dropped from more than 250 million three decades ago.

According to National Bureau of Statistics data, the per-capita disposable income for China's urban areas was 13,786 yuan (US$1,919) in 2007, up 17.2 percent, or 12.2 percent year-on-year in real terms. The figure for rural areas was 4,140 yuan, up 15.4 percent, or 9.5 percent in real terms.

(Xinhua News Agency April 22, 2008)

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