One of Beijing's biggest cases in recent years involving embezzlement of public funds has been transferred to the city's municipal prosecutors for further investigation, state media reported yesterday. Liu Linxiang, an official in charge of the budget at a state institution responsible for providing financial aid to millions of farmers, is accused of embezzling nearly 400 million yuan (HK$454.5 million) in agricultural subsidies during his tenure. The case is shaping up to be the biggest scandal in the capital city in terms of the amount of public funds being embezzled, The Beijing News reported yesterday. Liu, who worked at the Beijing branch of the All China Federation of Supply and Marketing Co-operatives, allegedly siphoned off 396 million yuan in government funds earmarked for the countryside and transferred the money to a company run by his friends, the paper reported. It did not name the company. His case surfaced two years ago and he was dismissed in November 2007. The communist party's anti-graft bureau in Beijing had been investigating his case before transferring it to the municipal prosecutors. Most of the stolen funds have been recovered, the report added. But law experts say he faces a heavy jail sentence because the public funds he embezzled were rural subsidies - the generous provision of which is the centrepiece of the leadership's rural policies. 'It seriously affected the timelines for providing rural loans to millions of peasants,' the report quoted an unnamed senior rural official as saying. Last year, the central government provided an unprecedented amount of subsidies to lenders in rural areas in order to unleash the growth potential in the country's vast, yet underdeveloped, countryside. The sweeteners, aimed at encouraging lending to farmers, came at a time when Beijing was keen to cushion the impact of slumping exports by stoking domestic demand. The authorities introduced subsidies to rural purchases of home appliances and vehicles. Rural lenders and credit co-operatives, including the federation, would receive funding if their loan books expanded on a yearly basis, had a loan-deposit ratio of at least 50 per cent and met other requirements set by the banking regulator, according to the Ministry of Finance. The countryside has been struggling to obtain capital since an industry revamp in the late 1990s forced most state banks to retreat, leaving behind only the Agricultural Bank of China and rural credit co-operatives at one stage. Lenders that stayed on have limited lending because of concerns about bad debts and low profits. They also charge rates as high as four times the central bank's benchmark rates.