Big banks and agricultural companies will expand their business in China's less competitive yet much-needed rural banking sector, said entrepreneurs on the sidelines of CPPCC meetings.

HSBC has quadrupled the capital of its first rural bank in the country and plans to open more such banks, said Vincent Cheng Hoi-chuen, executive director of HSBC.

"We are deeply concerned about rural finance in China and are confident of developing our business in this sector," said Cheng. HSBC last year opened the first foreign-invested rural bank in Suizhou, Hubei province, with capital of 10 million yuan.

Cheng said HSBC has been in talks with Liu Yonghao, chairman of New Hope Group, one of the largest agricultural companies in China.

Liu said he plans to spend 100 million yuan this year to set up deposit companies along with other financial institutions to help rural residents get loans from banks. "The difficulty in getting loans is the bottleneck for China's rural areas," said Liu.

Cheng and Liu's plans fit in nicely with Premier Wen Jiabao's work report, in which he said: "China will further develop the financial system in rural areas."

HSBC provides microfinance business in many countries, including the Philippines and Malaysia. "But we still have much to learn about the market in rural China," said Cheng.

Cheng called for greater market access and lower regional barriers. Under current rules, each village bank must have a separate board and can operate only within the county where it is located. That makes operating costs much higher, said Cheng.

Zheng Hui, president of Agricultural Development Bank of China, said there is a large demand in rural areas for loans despite the excess liquidity in the country. "There is a capital shortage in rural areas and it's still difficult for famers to get loans."

Minsheng bank recently announced it plans to set up a village bank in Chengdu, capital of Sichuan province. It will spend around 20 million yuan, taking a 20 percent stake in the bank, it said in an announcement.

China approved 19 township banks till the end of 2007. A Caijing magazine report said two of them are already making profit.

(China Daily March 14, 2008)