China strengthens rural financing

China is placing its faith in venture capital (VC) and private equity (PE) funds to boost financial support for rural areas, according to a government document published on Tuesday.

China will encourage establishment of rural-focused VC and PE firms to provide more capital to rural projects in an effort to nurture expansion and innovation in new products, said the statement on the government website, www.gov.cn.

The move is part of a package approved by the State Council, the country's Cabinet, to increase support for the agriculture sector, rural areas and farmers.

Rural finance remains the weakest link in China's financial system, making it a constraint to rural growth, according to the document.

To boost liquidity supply to rural areas, the document said, the government will reduce the amount of cash that rural banks have to keep at the central bank.

Echoing the document, the People's Bank of China announced on Tuesday that it will cut the reserve requirement ratio for county-level rural commercial banks by 2 percentage points and that for rural credit cooperative unions by 0.5 percentage points from Friday.

The move will enable rural banks to take back a part of their deposits with the central bank and lend them to farmers and rural companies.

While increasing capital supply, China has also tried to make loans more accessible to farmers who usually have few hard assets or property that can be used as collateral.

According to the document, it will encourage the use of state capital in setting up guarantee agencies in the countryside, with these agencies to act as middlemen between the government, lenders and farmer borrowers.

Zhou Mubing, vice chairman of the China Banking Regulatory Commission, said the measure will make it more convenient for farmers to get capital.

Other supportive measures in the package include encouraging rural companies to sell corporate bonds, improving agricultural insurance services, and a pilot program to mortgage rural land-use rights.