A top official with China's central bank yesterday said China and Africa should work closely to use development funds to improve less-developed areas.

"China and Africa should strengthen communication in exploring a better development finance system to support less-developed areas," said Xiang Junbo, vice-governor of the People's Bank of China.

"Development finance system is a broad concept, which covers not only traditional policy-based finance, but also other financial support modes that combine policy and commercial ingredients," Xiang said during a seminar held in Shanghai in advance of the 2007 annual meetings of the African Development Bank Group.

China has been building a development finance system to support impoverished areas over the past 20 years, according to Xiang.

The Chinese government has established policy banks that provide subsidized loans to those areas and extend preferential policies to increase investments.

The China Development Bank (CDB), established in 1994, plays a catalyst role in promoting commercial fund flow into less-developed areas.

By December 2006, CDB had total assets of over 2.3 trillion yuan (US$300 billion), with outstanding loans of 2 trillion yuan (US$260 billion) and a non-performing loan ratio of 0.72 percent.

Xiang said that market-based measures have been used to enhance commercial financial institutions' interest in supporting the underdeveloped areas.

Interest rate is used as a means in China to guide financial institutions to support less-developed areas, he said.

"In market-based interest rate reform, the first step we took was to lift the lending interest rate ceiling of rural financial institutions in providing financial services in less-developed areas," Xiang said.

In a pilot program initiated by the central bank, micro-credit companies were set up in 2005 in less-developed provinces in the country's western regions. As a result, the decline of financial services in those regions reversed course.

"However, development finance is not limited to policy-based financial activities but includes commercial, cooperative and charitable financial activities," the vice-governor said.

With the globalization of the world economy, the biggest challenge and problem for both China and Africa is to help less-developed areas out of poverty as well as achieving balanced economic and social development, he said.

Xiang said that although China has experimented with using development finance to support less-developed areas, it still lacks experience in this field.

"Africa has gained a lot of valuable experience and has had many successful practices in development finance, particularly in such areas as the management of development finance projects, development of social funds and growth of micro credit. We hope to take this opportunity to learn about Africa's experience and practices in development finance," he said.

Regional imbalances are one of the major bottlenecks for China's economic development.

Over the past 20 years, China has taken great efforts and employed a variety of policy measures, including raising household income, improving the development environment, optimizing economic structure and improving human capital, to promote the development of the undeveloped areas.

The poverty-stricken population in rural China has dropped to 24 million in 2005 from 250 million in 1978.

Meanwhile, a national strategy for developing the west has been implemented to help poor areas.

(China Daily May 14, 2007)