China strives to boost the rural economy

BEIJING -- Fiscal and monetary support to agriculture including tax breaks for banks that lend to the sector is set to continue according to China's cabinet, the State Council.

Specific measures announced after Wednesday's cabinet meeting include tax exemptions of bank income from loans made to farmers. Corporate income tax will only be payable on 90 percent of such revenue. Agricultural loans enjoying such tax breaks had to be less than 50,000 yuan ($8,000) previously, but the ceiling has now been raised to 100,000 yuan.

To bring insurance support to the sector, a 3-percent discount on turnover tax payable by county-level financial institutions in their insurance premiums will continue till the end of 2016. Insurers' premium revenue from crop and husbandry insurance shall enjoy a 10 percent discount in corporate income tax calculation.

Banks normally pay 5 percent turnover tax for business loans. The exemption for agricultural loans will lower bank costs, and theoretically allow them to lend more to farmers.

"Banks are generally reluctant to lend to agriculture but these policies might incentivize them," said Guo Tianyong of the Central University of Finance and Economics.

"The measures are the extension of support for agriculture while the sector remains relatively weak. There is a need to balance urban-rural and industrial-agricultural development, and financial policy is key to that end," said Gao Yuwei of Bank of China.

In terms of support tailored to the agricultural sector, the central bank cut the reserve requirement ratios for rural commercial banks and county-level rural credit cooperatives in April. Township banks, lending companies and village common funds also receive state subsidies worth 2 percent of their average outstanding loans each year. Such subsidies exceeded 4 billion yuan in 2013.

These measures come ahead of a major rural work conference later this month and are crucial to food security, farmers' incomes, and agricultural modernization.

Government data on Thursday showed grain output grew for the 11th year in a row in 2014, reaching 607 million tons, up 0.9 percent.

Earlier data from the National Bureau of Statistics also showed that the per capita income ratio between urban and rural regions stood at 2.59in September. The figure represents a narrower income gap compared to 2.64 in the same period last year.