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Washington D.C., March 19 2007
— The National People’s Congress of China has approved the country’s new Property Law, which includes a chapter on secured transactions. Developed with support from IFC, the private sector arm of the World Bank Group, the chapter significantly improves the legal framework for secured financing in the country, potentially putting in circulation over $2 trillion of movable assets mostly held by small and medium enterprises and farmers in China.
In most developed economies, movable assets such as accounts receivables, inventory, and equipment play a major role in securing financing for businesses. For example, in North America, about 70 percent of small-business financing is secured by movable property. A key feature of the chapter on secured transactions is the new inventory and accounts receivable financing, which was not previously possible due to legal restrictions. The new Property Law now allows debtors to access secured credit by providing their present and future-acquired assets, raw materials, finished goods, and accounts receivables as collateral. Currently, these assets cannot be fully used to secure loans, and businesses rely mainly on their retained earnings or informal sources of finance.
The Chinese and international financial institutions both welcome these changes, as 98 percent of banks would like to do bulk-receivables financing, according to a survey conducted by IFC and the People’s Bank of China in 2005. “This law is a quantum leap in access to finance, particularly for millions of small businesses and farmers in China that hold inventory and receivables as their primary assets,” said Pierre Guislain, General Manager of FIAS, the World Bank Group’s Investment Climate Advisory Service.
IFC Advisory Services has been working with key Chinese stakeholders for the past three years to improve China’s legal and institutional framework for secured lending. “The Chinese government has put in a tremendous effort into this law and has considered practices in both developed and emerging economies,” said Mario Fischel, General Manager of IFC PEP-China. Over the last decade, a number of countries in emerging markets, including Bosnia, Cambodia, Romania, Slovakia, and Vietnam have reformed their secured transactions laws. While the new Chinese law provides significant improvement to the existing lending environment, experiences from other reformers suggest that the legal provisions need to be backed with broader institutional reforms and assistance in implementation to maximize the impact.
About IFC
IFC, the private sector arm of the World Bank Group, promotes open and competitive markets in developing countries. IFC supports sustainable private sector companies and other partners in generating productive jobs and delivering basic services, so that people have opportunities to escape poverty and improve their lives. Through FY06, IFC Financial Products has committed more than $56 billion in funding for private sector investments and mobilized an additional $25 billion in syndications for 3,531 companies in 140 developing countries. IFC Advisory Services and donor partners have provided more than $1 billion in program support to build small enterprises, to accelerate private participation in infrastructure, to improve the business enabling environment, to increase access to finance, and to strengthen environmental and social sustainability. For more information, please visit
www.ifc.org
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IFC in China
China is IFC’s fifth-largest country portfolio and one of our fastest-growing client countries. One of IFC's strategies in helping the country’s financial sector is to improve access to finance, especially for small and medium enterprises. In FY06, IFC committed $639 million in 24 projects in China. Since its first investment in 1985, and as of December 31, 2006, IFC has provided $3.16 billion for 123 projects in China. IFC PEP-China is the Advisory Services facility managed by IFC and cofunded by the governments of Australia and the United Kingdom. The facility supports the sustainable development of small and medium enterprises in China. It focuses on less-developed regions of the country with the goal of bridging growing income gaps.
About FIAS
FIAS is a multidonor service of the IFC, the private sector arm of the World Bank Group; the Multilateral Investment Guarantee Agency; and the World Bank. FIAS advises governments of developing and transition countries on how to improve their investment climate for domestic and foreign investors, focusing on four main areas: investment climate diagnostics, investment laws and promotion, administrative barriers solutions, and industry competitiveness. Since its establishment in 1985, FIAS has assisted over 130 countries in increasing the level and impact of private investments through more than 680 projects. For more information, visit
www.fias.net
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