Citigroup Inc, America's biggest bank, plans to set up at least 10 rural banks and loan companies in China's countryside to gain a foothold serving the nation's 800 million farmers.

The New York-based bank wants to join the government's pilot program allowing foreign investors to operate in six of the nation's western and central provinces, Zang Jingfan, director of cooperative finance at the China Banking Regulatory Commission, said in an interview in Beijing yesterday.

President Hu Jintao has focused on boosting incomes for China's farmers, promoting loans to them and raising spending on public works. China relaxed banking rules in less-developed provinces in December, encouraging investors to set up locally based banks, loan companies and credit cooperatives in rural areas, Bloomberg News said.

"Foreign investors are eager to set up rural financial institutions," Jiang Dingzhi, vice chairman of the China Banking Regulatory Commission, also said yesterday. Another foreign bank also aims to set up more than 10 rural financial institutions, Zang said, without identifying it. The officials didn't say how many institutions will be approved.

The regulator expanded the pilot program this month to 31 provinces to boost competition. HSBC Holdings Plc, the largest foreign bank in China, received approval in August to set up a rural bank in Suizhou in central China's Hubei Province. Foreign investors like Citigroup can set up rural banks and loan companies, but not credit cooperatives.

Eight of 23 such institutions set up in the six pilot regions since the end of 2006 have made a profit, Jiang said, without giving details.

Chinese farmers earned an average 2,760 yuan (US$365) in the first nine months of 2006, less than a third of the income of urban dwellers.

The regulator is considering further relaxing controls on rural financial institutions, Jiang said. The regulation requiring a rural bank's biggest shareholder to be another bank and hold no less than 20 percent "can be discussed," he said.

It may also allow loan companies, which can only lend with capital and loans from shareholders and are barred from taking deposits, to be set up by non-financial companies, Jiang said. Only commercial banks and rural cooperative banks can set up loan companies currently.

(Shanghai Daily October 24, 2007)