rural tech transfer.jpgRabobank has signed a landmark deal with a Chinese rural cooperative bank, the first western bank to do so, according to the Dutch banking giant.

Rabobank
will take a 10% stake in the United Rural Cooperative Bank of Hangzhou
while International Finance Corporation will take 5%.

The IFC,
part of the World Bank, is involved because it sees modernising China's
rural cooperative banks as the next phase in the transformation of
China's banking sector and a key to rural development.

Lars Thunell, IFC executive vice president, says:

Reforming
the rural credit cooperative system has a profound impact on rural
development and poverty alleviation in China. This project aims to set
a benchmark for rural cooperative banks in China.

To
date, western interest in China's retail banking sector has focused
largely on the”big four” state-controlled banks, such as the Bank of
China whose recent IPO attracted so much attention, and other first-tier banks that operate nationwide.

URCB concentrates on providing loans to consumers and SMEs in rural areas around Hangzhou, capital of Zhejiang province.

It
has been formed from a clutch of rural credit cooperatives which in the
1950s were the only credit providers in rural areas. Rabobank shares
these cooperative principles, which no doubt explains why it has taken
a bite out of URCB.

However, the rural banking sector has been
particularly hard hit by the problem of non-performing loans, so more
hard-nosed foreign banks may be less inclined to head for the sticks.

For a good explanation on the different players in China's banking industry read this dated but free Economist Intelligence Unit.

Separately, two more western financial firms, Morgan Stanley and Prudential Asset Management, have been approved as Qualified Financial Institutional Investors.

The
QFII scheme, introduced following China's accession to the WTO, is
designed to open its domestic investment markets — particularly the
coveted 'A' share market — to foreign firms in a controlled fashion by
limiting the number of participants and setting investment quotas.

Since its launch in 2003, 42 foreign firms have been approved as QFIIs and investment quotas total more than $7bn.

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