China's central bank is considering further liberalizing interest rates in rural areas in order to improve financial services.

 

The remark was made by Jiao Jinpu, deputy chief of the research bureau under the People's Bank of China, yesterday at an online interview at the Chinese government website, www.gov.cn, after a netizen in Heilongjiang Province complained that lending rates at rural cooperatives kept surging.

 

According to Jiao, there are two concerns around high lending rates in rural areas.

 

First, due to higher costs and greater risks of granting loans in rural areas, financial institutions must keep lending rates at a certain level to cover costs.

 

Second, rural cooperatives have total control of lending rates because of insufficient competition in rural financial markets.

 

"By liberalizing interest rates, more reasonable, balanced rates will be set for both rural borrowers and financial institutions," Jiao said.

 

He said the government supports the establishment of diversified financial institutions that solve rural banking problems such as low network coverage, short financial supply and insufficient competition .

 

"The next step is to moderately adjust and lower entrance requirement for rural financial institutions," Jiao said.

 

In late December, the China Banking Regulatory Commission launched pilot program in six provinces, lowering the threshold for financial institutions to operate in rural areas.

 

Under the program, more than 20 village banks, lending companies and rural mutual cooperatives have been set up.

 

(China Daily June 8, 2007)