Thursday, January 7, 2010

Loans Mortgaged by Forest Rights

In China's collective ownership system for rural land, leaders have made clear that cropland can not be used as collateral for a loan. China's leaders acknowledge that farmers need to get loans and their lack of assets to secure them is a problem. But they are worried about what happens if a loan secured by farmland goes into foreclosure--farmers lose their land and their main means of support. Forests are not as sensitive as cropland, so the government has allowed forest land to be used as collateral in recent years. There are experiments with marketizing other kinds of rural land and housing as well.

A Farmers Daily article today advertises the Agricultural Development Bank of China's (ADBC) forest loan program that began in September 2006. As of November 2009, ADBC loans secured by collective forest rights totaled 5.3 billion yuan. Most of the money is going to public works and big companies. Of the loan total, 1.1 billion yuan supported industrialized enterprises, 520 million yuan supported small forestry enterprises, and 3.7 billion yuan supported forest infrastructure projects.

ADBC and the National Forestry Bureau jointly established a cooperative system in which forestry departments recommend projects, the bank evaluates the loans, and the two parties jointly supervise the project. In addition to the loans secured by forest property rights, in some projects other assets are used as collateral or other guarantee methods are used. The loans generally are for 5-8 years, but no longer than 10 years. Working capital loans are for 1 year and for some enterprises 2-3 year intermediate term loans are given. Generally the interest rate is the benchmark set by the Peoples Bank of China. The rate can’t be raised. Discounted rates are given for projects with public benefits.

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