A huge transfer of wealth into the Chinese countryside is driving record profits for rural financial institutions that were struggling to survive just a few years ago, according to the chairman of Agricultural Bank of China, the country’s largest rural lender.

In an interview with the Financial Times, Xiang Junbo, chairman, predicted that AgBank, which a decade ago was technically insolvent, would continue to reap record profits from Beijing’s plans to pump more money into the countryside.

AgBank said on Tuesday that net profits last year grew 46 per cent to Rmb95bn ($14bn), far outstripping the average net income growth of 29 per cent last year for its large domestic peers, which have focused their operations in fast-growing urban areas over the past decade.

“Around three years ago, 70 to 80 per cent of our branches at the county level and below were lossmaking but now 96 per cent of these branches are making money. This has been a life-changing, fundamental transformation,” Mr Xiang told the FT.

“This is why our competitors, such as Industrial and Commercial Bank of China and China Construction Bank, are planning to return to the rural areas and open at least 3,000 branches at the county level or below,” he said

AgBank, which listed last year in Shanghai and Hong Kong in the world’s largest initial public offering, boasts the biggest branch network in the world. Just over half its 23,600 outlets are in rural areas at the county level or below.

While most of its large state-controlled competitors have shut thousands of unprofitable rural outlets over the past decade, AgBank was required by the government to maintain lossmaking branches in the countryside as a public service.

“In the past, operating in the countryside used to be a social responsibility for our bank but now we have combined our social responsibility with profitability,” said Mr Xiang.

He attributes his bank’s apparent resurrection in large part to government policies that have prioritised infrastructure investment in the countryside in recent years.

He noted that government subsidies and investment in rural areas totalled about Rmb1,000bn – or 2.5 per cent of gross domestic product – last year alone and said this largesse was expected to expand under the latest five-year plan economic blueprint.

“The [2011-2015] five-year plan will be especially beneficial for AgBank and we enjoy better prospects than our peers,” Mr Xiang said. “Foreign and domestic [private] investment is also moving inland in China to look for more opportunities and the rural economy is getting richer.”

As input costs have increased in recent years many multinationals and private companies have started to shift operations to more remote parts of the country to take advantage of lower costs.

International financial institutions such as HSBC and Citigroup have also unveiled plans to expand into village and countryside lending in China.