China must accelerate the development of its agriculture and rural economy to maintain balanced national economic growth, a senior central banker said Thursday.

Since the nation's rural economic system reforms have failed to make any further breakthroughs in recent years, the rural economy is lagging far behind other sectors and farmers' incomes are growing slowly, said Wu Xiaoling, deputy governor of the People's Bank of China (PBOC).

That has cramped demand for further growth, Wu told an international symposium. A crucial step to stimulate the rural economy is to strengthen the rural financial system, helping it recover from erosion in recent years.

China started in 1996 to build a rural financial system that is based on credit co-operatives and flanked by commercial and policy-orientated finance.

But "overall, in recent years, credit support by rural financial systems to the rural economy did not grow, but weakened, especially policy finance," Wu told the symposium on Achieving High-Quality Growth through Effective Agricultural Finance Policy Framework.

The event was organized by the Asia-Pacific Rural and Agricultural Credit Association.

Three main reasons that have crippled the rural financial system in recent years: Commercial banks have refocused on cities to improve their competitiveness in the wake of China joining the World Trade Organization, the Agricultural Development Bank of China (ADBC) narrowed its business scope, and there has been a slow pace of reform in rural credit co-operatives, she said.

The official said the government plans to increase fiscal spending to improve the rural infrastructure, including roads, water supplies and communications, therefore helping build a desirable environment for commercial financial institutions.

China's 40,000 rural credit co-operatives, most of them unprofitable, are currently the main lenders in the nation's vast countryside. The government unveiled a major reform scheme earlier this year to restructure them into joint-stock or co-operative commercially-based entities, or a mixture of the two.

She said central and regional governments should help finance expenditures on infrastructure, technical upgrades and research, but many such projects, which require huge investments and carry relatively big risks, still will have to be supported by policy financial institutions.

Wu urged legislation on policy finance and stressed that projects supported by policy finance should be commercially operated and able to repay loans, although the return can be relatively low.

She said the role of policy finance, at the current stage, should be enhanced by strengthening the existing policy financial institution, or the ADBC.

The ADBC will be allowed to adjust its business scope and improve operational mechanisms on a province-based basis, Wu said.

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