China looks set to see a boom in access to finance since the passage in 2007 of the Property Rights Law. Last week, the Financial Times reported on the newfound ability of farmers to monetise their land. Some farmers are selling to larger, more efficient companies, while others are taking advantage of the opportunity to use their land as collateral:
...the application of a monetary value to land usage rights is creating fertile ground for the spread of financial services to the poorest. Most farmers have never had access to loans but Beijing is backing a flurry of initiatives to change this. To dramatise the point, Wen Jiabao, the premier, recently had an impromptu, televised chat with a somewhat startled, straw-hatted, 67-year-old farmer, Pan Jinmu, who had walked into his local bank in Zhejiang province to get a Rmb5,000 ($732, €499, £461) unsecured loan.
Meanwhile, the Doing Business team reports on the impact of the Property Rights Law on SMEs. Prior to the passage of the law, SMEs had very limited ability to use movable property as collateral for a loan. The authors report that 80% of firms surveyed in China listed access to finance as their number one business constraint. Now, things are starting to look up for SMEs:
...the initial data suggests that banks have started to lend more...20 months after the creation of an on-line registry for receivables, a total of 74,453 lending transactions using receivables as a security have been recorded for an estimated cumulative amount of over 5 trillion Yuan. More than 52% of these transactions were made to the small and medium Chinese enterprises. By now, practically, all middle and large lenders in China have developed receivables lending products.
Although it's way too early to be sure, I suspect these changes may help shift China's growth away from its coastal areas and from an export-dependent model of development—highly desirable, given the need to reduce global imbalances in production and consumption.
(Hat tip: Valerie Marechal)
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