The China Banking Regulatory Commission has given top priority to rebuilding the rural financial system, which has become weaker in recent years despite efforts to reform it.

In a bid to sharpen the competitiveness in the face of fierce foreign competition, China's four state-owned commercial banks, namely the Agricultural Bank of China, Bank of China, China Construction Bank and the Industrial and Commercial Bank of China, have withdrawn from most counties and rural areas to refocus on more profitable operations in big cities. This has left the burden of financing agricultural needs with rural credit co-operatives.

The rural credit co-operatives are already in dire straits, according to China Daily. Their non-performing loans stood at 515 billion yuan (US$62 billion) at the end of last year, a staggering 37 percent of their total outstanding loans, China Daily said without giving sources of the figures.

The central government has taken steps to remodel such cooperatives, reorganizing them into bigger co-operatives or into banks.

The most recent step was the establishment in March of the first rural co-operative bank in east China's Zhejiang Province, acombination of a joint-stock structure and co-operative mechanisms.

Qin Chijiang, deputy secretary-general of the China Society of Finance, said, "The issue of rural financing is a matter of overall economic policy."

Industrial policies should be revised to enable the structural upgrading of the rural economy, and preferential tax policies need to be formulated for farmers and businesses to support innovative agricultural technologies, he said.

Economists have also called for tax incentives to redirect commercial loans to rural areas, further reform of credit co-operatives and a lower interest rate on redeposited funds from postal savings branches.

(Xinhua News Agency May 10, 2003)