Sino Foreign Banks to Improve Rural Credit

The Chinese domestic banks and foreign banks, which are long-term rivals, plan to collaborate to improve the level of rural credit in China.

The Chinese domestic banks including Bank of China and China Construction Bank are studying how to work together with the foreign banks to accelerate the credit flow into the rural areas of China. This is one of the measures to reduce the difference between city and countryside in China.

Bank of China and the Singapore investment institution Temasek is working on an ambitious program which will involve hundreds of branches in China.

According to the source with the first-hand information of this matter, Bank of China and Temasek are respectively going to contribute 1.5 billion US dollars to establish a joint venture company. The balance sheet of the joint venture will reach 30 billion US dollars. Temasek will hold 49% of the shares of the joint venture company and the management of its business. The chief executive will be decided by Bank of China

At the meantime, China Construction Bank is talking with Spain-based Santander on founding a small joint venture specialized in lending loans to rural customers in China.

Different from Temasek, the other foreign banks are selling or reducing the shares of Chinese domestic banks they hold to raise cash during the financial crisis. That dissatisfies their Chinese partners a lot. Temasek, which increases its investment in China, is favored by Chinese watchdog. Therefore, the joint venture it invests will have no problems in getting approval. Above all, Zhu Min, vice president of People’s Bank of China, supports this plan.

China’s rural credit industry doesn’t have a profitable history. But Temasek hopes that today’s countryside can become tomorrow’s city with fast development of China.

According to the insider from Temasek, they’ve already learnt how to make lucrative credit lending in the Chinese rural areas. This is partially based on the lessons and experiences from the case of Indonesian Danamon Bank held by Temasek. This Indonesian bank has their business offices distributed in the rural areas of Indonesia.

Presently, the Chinese domestic banks are trying to ease the expansion pace of its credit loans which has brought about doubts for people about the bad credit loans.

China has already taken many measures to reduce the gap between city and countryside and to back economic growth after the global financial crisis. These measures include the increase of the minimum purchasing price of grains and the bigger subsidies for the farmers’ consumption of home appliances, cars and agriculture machines. But the economists point out that many farmers can not afford the electrical power to run these home appliances or the fuels for these machines. In addition, the farmers, who want to increase their capacity, apply new agriculture technology or even start their own private businesses, are in great demand for money. Therefore, Temasek believes that its investment in the rural credit will see return soon.