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Agricultural Bank Gets 130 Bln Yuan Recapitalization

China's central government has endorsed a long-awaited restructuring of the Agricultural Bank of China, the country's 4th largest, in an attempt to invigorate rural financing to aid the farmers.

The bank is the last of China's four major commercial banks to be restructured in preparation for a share listing, later possibly next year in Shanghai.

"In recent years the bank has undergone restructuring and preparations for reform and is now already basically prepared for reform," said a statement issued by the State Council, the Cabinet, following a meeting to discuss major government projects.

It said the meeting ordered the bank to push ahead with reforms aimed at making it a modern, competitive financial institution.

The Central Huijin Co, an investing arm of the government, will recapitalize the bank with a US$19 billion capital injection, or about 130 billion yuan. The Ministry of Finance, and the Central Huijin will each hold half of the bank's stocks.

The Agricultural Bank will focus on providing rural financial services and increasing lending, the State Council statement said.

Improving the incomes and purchasing power of the hundreds of millions still living in the countryside and smaller inland cities is seen as the next crucial step in expanding domestic demand and developing the Chinese economy.

In a boost for farmers, earlier this week the government's top economic planning agency announced an up to 15.3 percent increase in the minimum purchasing price paid for wheat. That move would raise incomes while also encouraging grain production.

Foreign banks have recently begun focusing on rural areas, with both British-based HSBC and Citigroup Inc. announcing plans for rural branches.

From now on, all Chinese commercial banks are supposed to walk on their own and the current economic downturn gives them the opportunity to prove themselves in terms of risk management and internal controls, analysts said.

Agricultural Bank, the least profitable of the four biggest state-owned commercial banks, was founded in 1979 to serve the country"s 800 million farmers.

(China Daily October 23, 2008)

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