People's Bank of China Governor Zhou Xiaochuan yesterday urged the financial sector to find new ways to support agricultural industry growth.

Agricultural infrastructure such as irrigation is of vital importance for the nation's grain output and the financial market can play a role, Zhou told the 2007 China Financial Forum yesterday in Beijing.

He suggested a mechanism similar to the international carbon-trading regime, in which a country can buy carbon credits from others under the 1997 Kyoto Protocol.

China has been pushing its urbanization drive in recent years, which has swallowed up large tracts of farmland. Zhou suggested compensation from developers paid to local governments for land use be channeled into agricultural infrastructure. "That will transfer some of the funding from urbanization to agricultural infrastructure construction, which could become a financial market tool."

He said any future scheme of this sort should be a nationwide arrangement as it would maximize the effect of trading.

"Benefits from the industrial development of farmland in coastal areas, for example, can be transferred to the inland areas, which will be related to issues like resource distribution, pricing and financial market trading."

He also encouraged the development of order-based agriculture, whereby farmers receive orders for production and farm in line with demand.

This would allow farmers to use their orders as a guarantee to get bank loans, he said. "It will boost the development of agriculture," Zhou said.

Chinese farmers often face difficulties getting loans because they cannot provide an adequate guarantee.

The country has made it easier for financial institutions to set up rural outlets to provide more convenient services for farmers. It is also encouraging micro-financing schemes to help farmers obtain capital.

Zhou also urged more agricultural insurance for farmers to help them ward off risks.

Some local governments, such as Dalian in Liaoning Province, have subsidized farmers to encourage them to buy agricultural insurance. The Dalian government covers half of farmers' insurance costs.

China's grain output exceeded 500 million tons this year, according to the Ministry of Agriculture. It's the fourth consecutive year the nation's grain output has increased.

But imports of soybean could reach 30 million tons this year - more than the domestic output, said Zhou. Last year, the nation imported 28.27 million tons.

The government pledged to enhance rural infrastructure construction to promote stable agricultural growth at the annual central rural work conference held over the weekend.

(China Daily December 26, 2007)