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HSBC ventures into Chinese rural market
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A rural bank established by the Hongkong and Shanghai Banking Corporation Limited (HSBC) opened for business on Thursday, marking the first entry by an overseas bank into a rural area of China.


The HSBC rural bank in the Cengdu District of Suizhou City in central China's Hubei Province offers deposit service for local businesses and individuals, and helps businesses raise funds.


With a staff of 22 and an initial capital of 10 million yuan (about 1.36 million U.S. dollars), the bank, a wholly-owned subsidiary of HSBC, will also provide trade financing and settlement services for export-oriented rural enterprises.


Peter Wong, Chairman of the Board of HSBC Rural Bank, said that he expected the bank to reach a balance of income and expense within the next three years. He said the bank attached importance to "accumulating the experience of running a rural bank and cultivating a rural financial pattern applicable across China."


Local government sources said that the HSBC rural operation would be granted the same treatment as other local rural financial institutions, including a three-year income tax holiday and lower sales tax rates.


Analysts said this rural foothold would give its parent, HSBC, extra leverage in the Chinese market as the country's rural-urban deposit gap was closing rapidly.


The per capita banking deposit for Chinese urban residents was 89.8 yuan (about 12 U.S. dollars) in 1978, nearly 13 times as much as that for farmers. By the end of 2005, the disparity had been narrowed to 5.28 times, with the urban per capita deposit at 20,715 yuan and that for farmers at 3,301 yuan, according to the National Development and Reform Commission (NDRC), the country's top economic planner.


Overall, Chinese citizens had deposited an aggregate 17.5 trillion yuan with all financial institutions by the end of March, central bank figures showed.


If all went smoothly, HSBC said, it would expand its services to include agriculture-related loans to individual farmers later in 2008.


Enthusiasm for foreign-funded banks in rural China rose after the banking authorities lifted restrictions in October. Villages and townships were previously approved to try rural banks on a pilot basis only in the provinces of Sichuan, Qinghai, Gansu, Jilin and Hubei as well as Inner Mongolia Autonomous Region.


At the end of 2006, the China Banking Regulatory Commission (CBRC) lowered the registered capital threshold to 3 million yuan for banks at the county level and 1 million yuan for those at the village and town levels.


Du Xiaoshan, deputy head of the Rural Development Institute of the Chinese Academy of Social Sciences, maintained that 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.


A report by the prestigious Tsinghua University showed that China had at least 120 million farmers who needed loans, but 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.


Tucked away in northeast Hubei province, Suizhou now has 21 financial outlets, mainly rural credit cooperatives and postal banks, servicing its 1.81 million rural residents, about 88.7 percent of its total population.


A Suizhou Rural Credit Union report predicted strong potential for the local rural market. Through September, rural credit cooperatives held only 33 percent of total outstanding loans of all local urban and rural credit cooperatives but reaped more than 37 percent of total interest proceeds.


Chairman Vincent Cheng of HSBC maintained that the advantages of his banks lay in its global network, expertise and experience from running rural banks in Brazil, India, Indonesia, the Philippines and Mexico.


Official figures show that about 44 percent of Suizhou's 900,000 rural laborers have left farming and now work in the service and manufacturing industries.


The city's 32 companies specializing in agricultural exports generated 61.84 million U.S. dollars in revenue in 2005, while total agricultural output stood at 8.26 billion yuan.


China currently has 25 rural financial institutions: 13 village banks, four lending firms and eight rural credit cooperatives.


(Xinhua News Agency December 14, 2007)

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