A rural bank established by the Hongkong and Shanghai Banking Corporation Limited (HSBC) opened for business on Thursday, marking the first entry by an international bank into a rural area of China.

The HSBC rural bank in the Cengdu District of Suizhou City in central China's Hubei Province offers deposit service for local businesses and individuals, and helps businesses raise funds.

With a staff of 22 and an initial capital of 10 million yuan (about US$1.36 million), the bank, a wholly-owned subsidiary of the HSBC, will also provide trade-related financing and settlement services for export-oriented rural enterprises.

Analysts said this rural foothold would give its parent, the HSBC, extra leverage in the Chinese market as the country's rural-urban deposit gap was closing rapidly.

The per capita banking deposit for Chinese urban residents was 89.8 yuan (about US$12) in 1978, nearly 13 times as much as that for farmers. By the end of 2005, the disparity had been narrowed to 5.28 times, with per capita deposit for urban dwellers at 20,715 yuan and 3,301 yuan for farmers, according to the National Commission of Development and Reform, the country's top economic planner.

Overall, Chinese people have deposited a combined 17.5 trillion yuan with all financial institutions in the country by the end of March, central bank figures revealed.

If everything went smoothly, the bank said, it would expand its services to include agriculture-related loans to individual farmers later in 2008.

Enthusiasm for foreign-funded banks in China's rural market rose after the country's banking authorities lifted restrictions in October. Villages and townships were approved to try rural banks on a pilot basis.

At the end of 2006, the China Banking Regulatory Commission also lowered the registered capital threshold to three million yuan for banks at county level and one million yuan for those at village and town levels.

Du Xiaoshan, deputy head of the Rural development Institute of the Chinese Academy of Social Sciences, maintained the low coverage of financial institutions and the severely inadequate and inefficient financial services in rural China would allow foreign banks to have more business and less competition.

A report by the prestigious Tsinghua University showed that China had at least 120 million farmers who needed loans, but only 60 percent were able to obtain financing. The situation was worse for small rural enterprises with only 50 percent able to get the loans they needed.

Tucked in the northeast of Hubei province, Suizhou currently has 21 financial outlets, mainly rural credit cooperatives and postal banks, servicing its 1.81 million rural residents, about 88.7 percent of its total population.

A Suizhou Rural Credit Union report predicted strong potential for the local rural market. Through September, rural credit cooperatives held only 33 percent of the total outstanding loans of all local urban and rural credit cooperatives, but possessed more than 37 percent of the total interest proceeds.

Official figures revealed that about 44 percent of Suizhou's 900,000 rural laborers have left farming and are employed in the service and manufacturing industries.

The city's 32 companies specializing in farm produce exports have generated US$61.84 million in revenue in 2005 while the total agricultural output stood at 8.26 billion yuan.

(CRIENGLISH.com December 14, 2007)