Here’s an example of how China’s government makes a lot of smart long-term decisions, despite the many problems within the country’s system.
After testing a program which allows farmers to use their land as collateral for loans, in order to empower them economically and stimulate development in rural areas, China is now rolling out the program on a grand scale.
It’s a move that even Caixin describes as ‘unexpected’:
“Financial products designed for farmers and innovations (for rural development) will be offered across the country” starting in the second half of this year, said a July 27 statement on the website of the People’s Bank of China, the central bank.
The pilot kicked off in October 2008 with little fanfare. Three provinces in the northeast and six provinces in central China were selected. Affected farmers were allowed to use farmland, homes and agricultural equipment such as tractors as loan collateral.
Since then, all 88 counties targeted by the project have reported surging loans to farmers. By the end of June 2010, outstanding loans related to rural development had reached 2.6 trillion yuan nationwide, up 24.2 per cent from a year earlier.
Agriculture officials around the country may be surprised by the latest announcement, which represents a major breakthrough for farm credit policy. But Wang Guiqin, an official at the Shandong Provincial Agricultural Department, said she couldn’t believe her eyes in May 2008 when she read a document declaring farmers in selected areas could use land as collateral.
This is the kind of development that won’t rock markets in the near-term, but actually could be great news for China’s long-term. Of course there’ll be room for abuse, but allowing the poorest to use their assets as collateral is the kind of lending we want to happen.