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Tsinghua program focuses on China's rural credit

By Ding Qi (chinadaily.com.cn)
Updated: 2009-06-15 18:06

When most urban people are discussing about the government's ongoing efforts to encourage credit expansion for China's economic growth, fewer have given more thoughts to the country's vast, fund-thirsty rural areas.

For the past three years, a group from one of China's most prestigious universities have shown their cares about the sector by accomplishing an ambitious nationwide program studying China's rural credit conditions.

Seminar on HSBC-Tsinghua China Rural Financial Development Research project is held in Tsinghua University, Beijing, June 13, 2009. [chinadaily.com.cn]

The project, named "HSBC-Tsinghua China Rural Financial Development Research", was conducted by 610 students and teachers from Tsinghua University. The group have visited about 5,100 rural households, 150 enterprises and 150 financial institutions of China's 16 provinces in the past three years to check the country's rural lending conditions.

Among all the survey findings they made, establishing a multi-level rural credit system to satisfy diversified funding needs has become an urgent call.

Compared with the sophisticated financial network in major Chinese cities, financial needs from the rural areas have seldom been the focus of large financial institutions.

A central bank report released last October showed more than seven percent of townships or counties in China even have no access to commercial credit.

Among those with credit sources, rural credit cooperatives, a kind of government-sanctioned small lending organizations, accounted for 35.62 percent of farmers' lending, while the rest is mostly borrowed via informal channels such as relatives, neighbors and underground lenders, which may pose unexpected financial risks, surveys of the Tsinghua program found.

Due to the uncertainties in agricultural production activities and incomplete rural credit database, urban commercial banks are often reluctant to grant loans to farmers and rural businesses. And rural credit cooperatives, with their high volume of non-performing loans for historical reasons and unclear profit-making model, are not capable enough to meet all of the frequent, diversified rural credit needs.

Liu Shiyu, vice governor of the People's Bank of China, speaks at the seminar in Tsinghua University, June 13, 2009. [chinadaily.com.cn]

"To improve the current rural financial system, we should develop diversified credit organizations including mutual aid savings union, micro-financing units and village banks based on rural conditions," Liu Shiyu, vice governor of the People's Bank of China, the central bank, said on the seminar of the program held on June 13.

"Currently, there are no policy barriers in this area, and we should encourage more financial moves in the rural areas," Liu added.

Cheng Hoi-chuen, chairman of HSBC in Asia Pacific region, said at the same forum that HSBC, sponsor of the Tsinghua program, had never thought of opening an outlet in China's countryside.

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Cheng said he was inspired by Mr Liu Mingkang, chairman of the China Banking Regulatory Commission, who told him that it only took about three million yuan to set up a rural bank outlet in China, which is beneficial to the country's rural development and a good experiment for the bank.

Several years later, HSBC has become one of the few foreign-funded banks testing China's rural water. As of March this year, HSBC had established five rural outlets across the country.

Liu Mingkang, head of China's banking regulator, vowed earlier that the nation will build 2,000 village banks to compete with existing rural credit cooperatives.

In February this year, China's central bank also said it would formulate regulations on private lenders and develop the sector into "a significant player" in the country's rural credit markets, although it gave no time table.

In order to promote the development of diversified financial institutions in the rural areas, a mature and flexible fund bulk-sale market among banks is needed to channel the money back to rural needs, and commercial banks are capable of playing an active role in the move, according to one of the findings of the program.