Countryside credit reducing rural poverty

Reductions in interest rates, coupled with lower reserve requirements for local commercial banks, are helping to create more jobs and provide higher incomes for residents of disadvantaged areas. Chen Jia reports from Huayuan, Hunan province, and Lankao, Henan province.

Despite a new, if slightly bumpy, mountain road and countless tunnels, it still takes more than six hours to drive to Shiba Dong, a village in western Hunan province, from Changsha, the provincial capital.

Surrounded by the Wuling Mountains, and at an average elevation of more than 1,000 meters, the village, which is home to members of the Miao ethnic group, has just 54.5 hectares of cultivatable land. The rest is barren - and that's a major problem in an area where there are few ways of making a living beyond working the land.

Last year, Shiba Dong's 938 registered residents each earned an average 1,680 yuan ($263), far below the official national poverty line of 2,300 yuan.

The lack of opportunities forced about one-third of the labor force to move to the cities in search of work, leaving the remainder, mostly elderly people and children, in the village.

"We were inured to living in poverty until last year, when the government showed us a new way to raise our incomes. The solution was completely unexpected," said Long Xiulin, head of the poverty-alleviation working group in the village.

The "new way" arrived in August, when the government supported the founding of Miao Hanzi Fruit Co, a joint-stock operation that cultivates kiwi fruits in fields about 30 km from the village. All the villagers own shares in the company.

The venture was prompted by the area's geography, altitude and average mean temperature, which make the region more suitable for the cultivation of kiwi fruits than grain. The only drawbacks were the need for a large area of flat land and a lack of capital.

The land problem was solved when the company rented 75 hectares from another village and contracted it out to the farmers. To provide the capital, a number of professional local cooperatives injected more than 3 million yuan to buy 51 percent of the company's shares, while most of the remaining shares - 49 percent, and worth 2.94 mill-ion yuan - were purchased by the villagers, who used special poverty-relief funds that were previously paid to the village authorities.

In addition to its registered capital of almost 6 million yuan, the company approached a commercial bank, which provided a loan of 10 million yuan to fund infrastructure construction, according to Shi Zhigang, Miao Hanzi Fruit's general manager.

When the first fruits are harvested in 2017, the company expects to earn 25 million yuan, including net income of 17 million yuan, which will result in each villager receiving an annual dividend of more than 5,000 yuan.

Innovative measures

"This business model is an innovative poverty-alleviation measure. It provides help for the poor and promotes sustainable earnings," said Luo Ming, the Party chief of Huayuan county, which administers Shiba Dong.

Luo said the financial support offered by the People's Bank of China has played a key role in the successful implementation of the model: "Without the coordinating work of the central bank, the kiwi fruit planters would not have obtained their loans so quickly, or at a lower interest rate and with an extended repayment period."

To encourage commercial banks to increase the amount of credit they extend to poverty-stricken areas, the Hunan branch of the PBOC has this year lowered the rate at which it lends to commercial banks to 1.85 percent, a drop of 1 percentage point. The only proviso is that the money must be used to support agricultural enterprises. The reduction means individuals and companies can borrow at an interest rate about 2 percentage points lower than that charged for general agricultural credit, according to a statement from the PBOC's Hunan branch.

On Oct 24, the PBOC lowered the benchmark interest rate for the sixth time in the space of a year, resulting in the one-year lending rate falling to 4.35 percent. In addition, it has lowered the required reserve ratio - the amount of "liquid cash" banks must keep in their coffers to deal with emergencies - for financial institutions in underdeveloped regions, or those that focus on agricultural services. The RRR for banks in these areas is about 1 percentage point lower than their commercial peers in urban areas, thus freeing up an extra 3 bill-ion yuan in Hunan.

Ma Tianlu, deputy director of the PBOC's Hunan branch, said the new measures were introduced to drive down financing costs, especially for poverty-stricken groups. The moves have resulted in some "special" industries, including kiwi fruit cultivation, developing at faster rates than before.

The "Hunan model" of poverty-alleviation is not an isolated phenomenon, though. The PBOC has introduced similar policies in other deprived areas to help achieve the national target of lifting more than 70 million people out of poverty in the next five years and produce a "moderately well-off society" by about 2020. The plan is articulated in the 13th Five-Year Plan (2016-20), the country's new blueprint for economic development.

Since 1978, more than 700 million people have seen their living standards rise to a level that means they are no longer classified as living in poverty, but there is still work to be done.

At the end of last year, 70.17 million rural residents were still living below the national poverty line.

According to data supplied by the National Development and Reform Commission, China has 14 contiguous disadvantaged areas that are home to 592 counties targeted by the national plan for poverty alleviation and development.

In the next five years, more financial services will be introduced in rural areas, with the aim of increasing the number of job opportunities, accelerating infrastructure construction projects and continuing the policy of extending low-interest credit, according to Pan Gongsheng, the deputy governor of the PBOC.

"Unlike the supportive fiscal measures, where money is given directly to those in need, financial services should be diversified and targeted to focus on sustainable, long-term development projects," he said.

Wider application

Although poverty alleviation presents the central government with tough challenges, recent years have seen the introduction of many successful measures, some of which can be applied across a wider area, or even on the global stage.

In Lankao, a county in Henan province, the average annual per capita income had risen to 7,545 yuan by last year, up from 4,429 yuan in 2010. At the same time, the number of people classified as living in poverty fell by nearly 79,400 from the 1.3 million recorded five years ago, according to the local government.

As a powerful fiscal tool, credit extended by commercial banks has supported the rapid development of the county's traditional musical instrument industry. Located along the ancient, former bed of the Yellow River, the area's barren saline-alkali soil was a major cause of poverty until the locals realized that it was suitable for the cultivation of Paulownia trees, whose wood is used in the manufacture of traditional instruments, including the guzheng and the guqin.

Since June last year, local commercial banks have provided five companies in Lankao with loans totaling 1.8 million yuan. The companies used the money to buy 97 local handicraft workshops and incorporate them and their owners into their existing operations, according to Yang Zhihai, deputy head of the county. In addition, the companies provided more than 1,500 jobs, which have lifted 300 families out of poverty, he said.

Pang Zhenyan, deputy director of the PBOC's Henan branch, said the credit extended to the 53 officially "poverty-stricken" counties in the province had reached 363 bill-ion yuan by September, a rise of 13.9 percent from the same month a year earlier, thanks to the policies governing lower lending rates and further easing of the required reserve ratio for banks.

Contact the writer at chenjia1@chinadaily.com.cn