The funding announced late Wednesday is part of a government plan to boost grain production, divert water, build emergency wells and take other steps in the affected areas in central and northern China.
Snow fell Thursday in some of the driest areas, but it was minimal and has not eased worries about the winter wheat crop. The main wheat belt, including Shandong, Henan, Hebei, Anhui, Shanxi, Shaanxi, Gansu and Jiangsu provinces, has gotten virtually no precipitation since October.
The crisis prompted Premier Wen Jiabao to hold an executive meeting Wednesday of the State Council, China's Cabinet, to discuss drought measures. At least 6.7 billion yuan ($1.02 billion) would be spent to boost grain production by raising minimum purchase prices of grain, subsidizing the purchase of anti-drought technologies and adding funding for farm irrigation.
The State Council warned that rainfall across northern China would remain "persistently below normal levels and major rivers will continue to be generally dry," the official China Daily reported Thursday.
The first snowfall of the year to hit the capital and northern provinces brought 1 to 3 millimeters (less than a half inch) of precipitation, the National Meteorological Center said.
China has claimed success with cloud seeding techniques. Silver iodide fired from canons and missiles caused a light smattering of snow in Henan and Shandong provinces, state broadcaster CCTV reported.
"The cloud-seeding has achieved a good result and played an active role in relieving the drought situation," said Zhou Jianquan, deputy director of Zhengzhou Meteorological Bureau.
China, the leading producer of wheat worldwide, has been largely self-sufficient in growing the grain, but the drought threatened the winter crop and could even impact the summer production.
The Ministry of Agriculture said the drought has affected about 7.73 million hectares of winter wheat. Agriculture Minister Han Changfu said summer grain and oil production is crucial to easing inflation pressures and stabilizing grain output for the entire year, the official Xinhua News Agency said.
"To have a summer harvest, the current pressing job is to protect winter wheat from drought," Han said.
Inflation has mainly raised food prices in the past year, and China's leaders are extremely wary of the potential for social unrest if inflation continues to bite into the incomes of ordinary Chinese.
The U.N.'s food agency has warned the drought is driving up China's wheat prices, and now the focus is on whether China will buy more from the global market, where prices have risen about 35 percent since mid-November.