China: New property rights law

Authors: Valerie Marechal, Pelin Tekin, and Humay Guliyeva
Publication: Celebrating Reforms 2009
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After a record 14 years of consultation, China’s long awaited new Property Rights Law was finally passed on March 16, 2007. Referred to as “China’s next revolution” by The Economist, the law offered equal protection to socialist public property and private property, stated explicitly for the first time. This was a huge step in reforming secured lending and building a modern secured transactions system.

This case study looks at the long road to reform and what it could mean to small and medium-sized enterprises in China. It also looks at steps that still lie ahead.

Main Findings

  • Before the new Property Rights Law, China scored only 4 out of 10 on the Doing Business “Legal Rights” index. After the reform, that score climbed to a 6.
  • Reforms also helped China move up 20 places on the “Getting Credit—Legal Rights” ranking. China now sits at number 59 out of 181 economies measured in the 2009 Doing Business report.
  • The Credit Reference Center of the People’s Bank of China (PBOC) reports that by June 2009, 20 months after the creation of an on-line registry for receivables, a total of 74,453 lending transactions using receivables as a security were 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.
  • China still needs to take steps to centralize all asset registries to further facilitate access to credit.