1. The background and main content of policy
Since the Third Plenary Session of the 17th CPC Central Committee, the CPC Central Committee had asked for further improvement of rural banking services, particularly breakthroughs in innovation in rural banking products and service models.
In order to meet the demands, the People's Bank of China, together with the national banking, securities and insurance regulatory authorities, released in May 2010 Guidelines on the Overall Promotion of Innovation in Rural Banking Products and Service Models. The document asked for the launch of experiments across the country on new rural banking products and new sendee models including loans with forest property rights as collateral and services models such as "company + production base + farmer households" and "company + professional organizations + farmer households". The aim was to tap idle assets in rural areas and broaden fund-raising channels and to fend off financial risks in rural areas.
Various departments increased their support for rural banking, and coordination among the departments was strengthened. The reform of agricultural banks was carried forward through measures such as recapitalization and removal of bad assets. The reform of rural credit cooperatives was deepened through special-purpose notes, central bank lending for agriculture, inflation-proof subsidies, and loan loss reserves. Efforts were made to boost agriculture-related credit through preferential tax treatments, financial subsidies and awards and differentiated deposit reserve ratios.
The People's Bank of China pushed forward the development of a nationwide credit information system. Various localities promoted with enthusiasm the development of rural credit systems based on information sharing among farmer households and credit rating of farmer households in a bid to encourage commercial banks to provide more credit loans to farmer households. Efforts were also made to improve rural credit environment through the development of creditworthy farmer households, villages and townships.
2. Implementation of the policy and evaluation
In 2010, the rural credit market was constantly improved and the role of the capital market in supporting agriculture, rural areas and farmers was further boosted. Agricultural enterprises saw their fund-raising channels broadened and a multi-tiered and multi-player rural insurance service network was improved. Agricultural insurance, life insurance in rural areas and small-amount insurance saw rapid development with ever expanding coverage and enhanced capacity.
At the end of 2010, financial institutions of the banking industry had a balance of 11,770 billion yuan in agriculture-related loans. Agricultural insurance fees amounted to 13.57 billion yuan. The farm product futures market was expanded to cover 13 categories. Financial institutions maintained a low bad loan ratio even though they increased agriculture-related loans at a fast pace. At the end of 2010, financial institutions of the banking industry had a bad loan ratio of 4.1% among their agriculture-related loans, 1.9 percentage points lower than at the end of 2009. The average bad loan ratio among agriculture-related loans of large-scale commercial banks was 1.7% and thaUof the Agricultural Development Bank was 3%. Rural credit cooperatives had a bad loan ratio of 11.5%, rural commercial banks, 2.5%, rural cooperative banks, 2.7%.
1) Reform of ownership of rural credit cooperatives was carried forward in a steady manner. Rural credit cooperatives, including rural commercial banks and rural cooperative banks, gradually saw their ownership diversified, and their role as main agriculture-supporting financial institutions was further consolidated.
At the end of 2010, 1,976 rural credit cooperatives were governed by unitary legal persons in county (city) groupings, compared to 94 at the end of 2002. During the same period, the number of rural cooperative banks and rural commercial banks increased from three to 300. There were 216 rural cooperative banks and 84 rural commercial banks in 2010.
At the end of 2010, rural credit cooperatives had a balance of 8,800 billion yuan in deposits and 5,900 billion yuan in loans，an increase of 440% and 420% respectively compared to the end of 2002. Rural credit cooperatives had a balance of 3,870 billion yuan in agriculture-related loans and 2,000 billion yuan in loans for farmer households.
By the end of 2010, the People's Bank of China provided rural credit cooperatives with funds of 171.8 billion yuan in the forms of special-purpose notes and special-purpose loans. In 2010, rural credit cooperatives had 76 billion yuan of their business taxes and income taxes reduced or exempted and received 8.8 billion yuan as inflation-proof provisions.
The aggregate funds from the central finances for the removal of historical debts of rural credit cooperatives totaled 250 billion yuan, accounting for more than 80% of insolvency of rural credit cooperatives at the end of 2002. By the end of 2010, 78.8 billion yuan, or 60%, of outstanding debts had been paid off. In 1,713 counties (cities), all outstanding debts of rural credit cooperatives had been paid off by the end of 2010. The longstanding systematic risks of payment for rural credit cooperatives were effectively put under control.
2) The transformation of the Agricultural Bank of China into a stock company was successfully completed. The Agricultural Bank of China was listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange on 15 and 16July 2010 respectively. The listing on the two exchanges almost at the same time raised funds of US$22.1 billion.
A professional management system with divisional structure for agricultural banking as the core began to be functional, which represented new exploration in a new model that would combine the bank's services to agriculture, rural areas and farmers with commercial operations.
The Agricultural Bank of China made active efforts to carry out experiments on the adoption of a divisional system for agriculture banking. Since April 2010，building on prior experiments, the bank selected eight branches including branches in Gansu and Sichuan for the development of improved management structures, following the principle of management by the county branch under the supervision of the prefectural branch, the provincial branch and the headquarters of the bank; for the development of management mechanisms, following the principle of “eight independent controls” of capital, credit, accounting, loan loss reserves, funds and performance evaluation.
At the end of 2010, the Agricultural Bank of China had a balance of 1,470 billion yuan in agriculture-related loans, including loans of 730 billion yuan for 32,000 small- and medium sized enterprises in various counties, 300 billion yuan for the urbanization of rural areas and rural infrastructure construction, 299.1 billion yuan for rural households. A total of 61 million cards that were beneficial to farmers were issued with a total credit of 160 billion yuan. The Agricultural Bank of China had a balance of 98.9 billion yuan in small loans to rural households, benefiting more than 5.8 million households.
3) The Agricultural Development Bank's agriculture-related business was expanded. At the end of 2010, the Agricultural Development Bank had a balance of 1,671 billion yuan in loans, up 648.59 billion yuan, or 63.4%, compared to the end of 2007. The bank had a balance of 978.7 billion yuan in loans for the purchase of grain and edible oil, accounting for 58.6% of total loans. In 2010, the bank provided loans of 278.8 billion yuan for the purchase of grain and edible oil, 1.3% higher than in 2007. The bank had a balance of 307.5 billion yuan in loans for agricultural development and rural infrastructure construction, accounting for 18.4% of total loans; 166.6 billion yuan in loans for key enterprises of industrialized management and for farm product processing enterprises, accounting for 10%; 154.87 billion yuan in loans for township construction within counties, accounting for 9.3%; 8.69 billion yuan in loans for agricultural science and technology and 8.59 billion yuan in loans for small agricultural enterprises.
4) The Postal Savings Bank of China expanded its agriculture-related credit services. The Postal Savings Bank of China had 29,600 outlets in rural areas administered by the county or lower authorities. In addition to savings and remittance services, the outlets dealt with insurance, the payment of electricity, phone and cable television bills, the delivery of food allowances, compensation funds for retiring fragile land from farming and switching it to forestation, and awards for family planning.
At the end of 2010, the Postal Savings Bank of China had a balance of 2,847.08 billion yuan in personal savings, 1,82936 billion yuan (64.3%) of which was savings at outlets at county level or lower. The bank managed to have 38,570 of its outlets interconnected. The bank handled 1,156.85 billion yuan in its proxy services in 2010.
The bank brought funds to rural areas by various means. First, it explored ways of providing wholesale funds to rural banking institutions through the capital market. At the end of 2010, the Postal Savings Bank of China had a balance of 18.52 billion yuan in agriculture-supporting deposits in collaboration with rural banking institutions, and a balance of 45.195 billion yuan in bonds purchased from the Agricultural Development Bank.
Second, it supported agriculture through syndicated loans. The bank put large sums of money in key national projects for agriculture, rural areas and farmers' livelihood, rural infrastructure construction, and comprehensive agricultural development. At the end of 2010, the bank had a balance of 3.41 billion yuan in agriculture-related syndicated loans.
Third, it provided retail banking services to benefit rural areas. At the end of 2010, the Postal Savings Bank of China's 4,591 secondary branches had opened small loan services and provided 188.5 billion yuan in 3.343 million small loans in rural areas at county level or lower, accounting for 69.4% of its total small loans.
5) New type of rural banking institutions mushroomed. At the end of 2010, 509 new type rural banking institutions were established, 395 of them一349 village and township banks, nine lending companies and 37 rural financial mutual-aid cooperatives—were operational. The remaining 114 institutions were in the pipeline. Regionwise, 152 such rural banking institutions were in the western region, 153 in the central region and 204 in the eastern region.
By the end of 2010, more than 80% of the loans provided by these institutions were for agriculture, rural areas and farmers as well as for small-sized enterprises. The emergence of new type of rural banking institutions boosted competition in the rural financial market and its effectiveness, filled vacuums of rural financial services, thus promoting the quality of rural financial services.
6) Small-loan companies saw rapid development. At the end of 2010, there were 2,451 small-loan companies in operation across the country, 1,280 more than at the end of the previous year. These companies had a balance of 197.5 billion yuan in loans at the end of 2010, 120.18 billion yuan more than at the beginning of the year. The companies achieved a book profit of 9.83 billion yuan.
Small-loan companies played a role in encouraging the private sector to develop agriculture-related businesses. They also got experience in cooperation between the banking sector and small-sized enterprises and served as a bridge between big cash and small customers.
The rural banking system had the following shortcomings: First, a multi-level, diversified and moderately competitive rural financial service system had yet to be established. Second, the rural credit market had yet to be explored and expanded. Third, a linkage mechanism between credit, equity and insurance had yet to be promoted. Fourth, the rural financial environment had yet to be improved. Fifth, policies and laws concerning rural banking had yet to be improved.
