China transforms use of foreign investment
Updated: 2007-12-30 15:51
December 13 proved a unique day to Yang Yuguo, an all-powerful official extending credit at Sanligang Rural Credit Cooperative in Cengdu District of Suizhou City of Central China's Hubei Province.
Each day, Yang would make about 20 small loans or collections in his spacious three-desk office with local individuals and village enterprises from seven neighboring villages. But that day, he thought he might lose some clients to a formidable competitor.
The new lender, small as it was now, was HSBC Rural Bank, a wholly-owned subsidiary of British financial giant Hong Kong and Shanghai Banking Corporation Limited (HSBC). The subsidiary opened for business that day, marking the first entry of an overseas bank into a rural area of China.
In October, the China Banking Regulatory Commission (CBRC) lifted restrictions for overseas financial institutions on the regions where village and township banks could be established. Instead of the six previous pilot provinces, such banks could now be established in any rural area.
HSBC, with experience of running rural banks in Brazil, India, Indonesia, the Philippines and Mexico, showed great enthusiasm for doing business in rural China.
With a staff of 22 and an initial capital of 10 million yuan ($1.36 million), HSBC Rural Bank offered deposit services for local businesses and individuals and helped businesses raise funds. It also provided trade financing and settlement services for export-oriented rural enterprises.
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"The weak presence of financial institutions and the inadequate, inefficient services they offered in rural China would allow foreign banks to do more business with less competition," said Du Xiaoshan, deputy head of the Rural Development Institute of the Chinese Academy of Social Sciences.
Historically, Chinese farmers had long been neglected by the country's banks because of the higher risks of lending to them. This was compounded by greater operating costs and lower returns.
Traditionally, rural borrowers could only obtain loans from the Postal Savings Bank and local cooperatives. Official figures indicated farmers could rarely obtain loans of more than 5,000 yuan.
A report by Beijing's prestigious Tsinghua University revealed that China had at least 120 million farmers who needed loans. However, only 60 percent were able to obtain financing. The situation was worse for small rural enterprises, with only 50 percent able to get the loans they needed.
The huge business potential in the country's rural market was the carrot that has attracted the foreign banks. Similar to HSBC, Citibank, Standard Chartered and some other foreign-funded banks have also shown interest in expanding to China's rural areas.
The go-to-the-countryside strategy mirrored the steady business expansion of overseas banks in China since last December when the country fully opened its banking sector to foreign competitors.
Total assets of overseas banks in China hit $153.9 billion by the end of October, a 41 percent increase from the same month last year, said Qi Jianming, deputy director of CBRC's Banking Supervision Department III, which oversees foreign banks in China. The figure accounted for a 2.24 percent share of all financial institutions in the country.
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