(Adds detail, comment)
By Dominique Patton and Kevin Yao
BEIJING Aug 24 China will launch a pilot
programme allowing farmers to use their land and property as
collateral for loans, the State Council said on Monday, the
latest step to bolster support for the cash-starved farm sector.
The move is aimed at deepening financial reform and stepping
up financial support for farmers, said China's cabinet.
China's farm sector employs almost a third of its 1.4
billion people but its share of GDP has declined over the years
and productivity on the country's tiny farms are low.
Beijing has repeatedly called for more modern, larger farms
but farmers struggle to get loans to expand as they have no
assets to use as collateral. All land in China is owned by the
Heilongjiang province, China's breadbasket in the northeast,
and eastern Shandong province have already begun experimenting
with the use of land rights as collateral.
Under the new project, both land use rights and property
could be pledged to secure bank loans, said a cabinet document,
which added that farmers' interests would be strictly enforced.
"We will steadily and appropriately conduct the pilot
programme on the use of the two rights (land and property) as
collateral, on condition that risks will be controlled and on
the basis of relevant laws and policies on rural and reforms,"
said the Council.
It added that the central bank will encourage financial
institutions to participate in the pilot and step up support for
qualified institutions through relending, while the banking
regulator will study "differentiated" policies in setting
capital adequacy ratios.
It will also maintain the 'red line' in arable land, a
minimum area mandated by the government to be reserved for
growing crops to protect food security.
Some experts have argued however that farmers should be
allowed to use their contracted land rights as collateral,
rather than their operating rights.
Contracted rights are derived from the collective land owner
or local government to households for 30 or 40 years. The
households can then lease the right to use the land to others.
"Operating rights are only awarded for a few years, and this
doesn't earn much income," said Cheng Enjiang, senior research
fellow at Victoria University in Australia specialising in rural
finance in China.
"Contracted rights is more long-term and can generate an
income stream (which could be more valuable to banks as
collateral)," he said.
Dang Guoying, a senior researcher at the Chinese Academy of
Social Sciences, a top government think-tank, said banks will be
cautious in taking land and property rights as loan collateral
given that such rights cannot be traded freely.
"Banks are reluctant to take them (land and property rights)
as collateral. The most important step is allowing them to be
traded freely," Dang said.
(Reporting By Dominique Patton and Kevin Yao; Editing by