The small number of rural financial institutions, for example, cannot cover those farmers who need financing, Liu recently told the 2006 China Financial Forum in Beijing.

Their low operational efficiency and lack of competition have added to the financial predicament of the farmers.

Liu said the regulatory body has eased requirements for rural banks and other institutions willing to enter the rural areas to support local development.

"We have relaxed conditions for industrial and private capital to establish new institutions or purchase and merge existing ones," he said.

The CBRC released a new guideline last week that halves the registered capital requirement for rural co-operative banks to 10 million yuan (US$1.28 million).

The new rule also encourages investors to try more financial products in accordance with rural realities.

Liu said regulations would be strengthened in rural areas to reduce risks and ensure the healthy development of new financial establishments.

Tang Min, chief economist of the Asian Development Bank in China, said the new initiatives taken by the regulators are a "milestone."

"Ten years from now, when we look back, it may prove to be a significant breakthrough," he said.

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