All posts by Kirby Chien

Lessons from children, old ladies

China’s banking system could take a cue from children and
neighborhood social groups to strengthen lending rules and
ensure that credit flows to where it is needed most.

The country’s banks lent a whopping record 7.37 trillion yuan
($1.08 trillion) in the first half of the year, but regulators
worry that a significant portion is not flowing into the real
economy and smaller firms where funds are needed the most.

“If you give children money without strings attached, they
won’t value it,” Yang Zaiping, the executive vice president of
the China Banking Association, said at the Reuters China Investment

Yang was making a point about firming up banks’ credit policy
to ensure that borrowers understand the importance of maintaining
their credit-worthiness.

The executive said a traditional Chinese network of neighbors
and old ladies that watched after neighborhood safety and other
local issues could be copied to help channel funds into small and
medium-sized companies, a long-standing problem in China.

“Old ladies know a lot about the neighborhood,” he said.

Yang said banks could lend to a group of small companies, and
as long as all repaid their loans, then interest rates would
remain low. But if only one borrower were to default, all would be
punished, putting more responsibility on all borrowers to ensure
each loan remains active.

Where others won’t go

Chinese mining companies are expanding overseas because they are cost-effective and willing to work in dangerous and risky areas where others are unwilling to go, Yang Junmin, vice general
manager of Beijing Sinodrill, asserted at the Reuters China Investment Summit.

Some critics accuse Beijing of supporting corrupt regimes in Africa, the Middle East and Latin American, where Chinese companies are investing aggressively to secure access to raw materials to fuel the country's rapid economic growth.

"If we could find an African company to do the work, nobody would need a Chinese company," Yang said. "Africans are very impressed with the work we do there."

"It's a simple matter of economics," he said, pointing out that Chinese companies are also willing to take on risks of working in countries such as Afghanistan.

Sinodrill still relies on the domestic market for 80 percent of its exploration and drilling services, but the contribution from Australia, Southeast Asia, Africa and the Americas is growing fast.

The company also has a lower cost structure than foreign companies looking to penetrate the Chinese market.

"Foreign drilling teams who come to China to work need at least one trip back to their home country every two months," he said. "Their costs are very high."

Photo Caption: Yang Junmin, vice-general manager of Beijing Sinodrill, speaks during the Reuters China Investment Summit. REUTERS/Christina Hu