Chinese act to help rural lenders
By Mure Dickie in Beijing
Published: August 22 2003 5:00 | Last Updated: August 22 2003 5:00
China has unveiled a trial bail-out of its struggling rural credit co-operatives intended to help them back to solvency and foster growth.
The publicly funded trial, in seven provinces and the city of Chongqing, is aimed at easing critical shortages of credit in rural areas, helping raise incomes and preserving "social stability".
But success is far from assured. Many co-operatives are in deep financial trouble and corruption is rampant. The rate of non-performing loans at many of China's 38,000 rural credit co-operatives is estimated at more than 50 per cent.
Zhou Xiaochuan, governor of the People's Bank of China, the central bank, said it was essential to help the rural lenders shed this "burden left by history" as quickly as possible.
"This time the strength of the government's support for the trial policy for rural credit co-operative reform is very great, combining elements that involve fiscal, tax, funding and interest rate measures," Mr Zhou said in a speech published by state media yesterday.
He said the central bank would issue loans or paper to rural credit co-operatives equivalent to 50 per cent of their negative net assets. State media said lending rate flexibility and tax breaks would also be granted.
While hoping to clean up the co-operatives' balance sheets, the government is also keen for them to increase lending to local enterprises and farmers - raising the prospect that they will merely continue to stack up future bad assets.
However, economic stimulus is badly needed in many rural areas, amid a fall in farmers' incomes that is accentuating the gulf between them and China's richer urban residents.
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