Hu Xiaolian: Law on real rights of the People's Republic of China
Speech by Ms Hu Xiaolian, Deputy Governor of the People's Bank of China, at the
Symposium on Judicial Interpretation of Law on Real Rights, Beijing, 27 May 2010.
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I am delighted to attend the symposium on judicial interpretation of the Law on Real Rights of
the People's Republic of China organized by the Supreme People's Court and the People's
Bank of China with the support of International Finance Corporation. We have gathered here
today to discuss the experiences of reforming the legal system on security interest, security
interests in personal property and innovative practices on warranty of titles, so as to promote
the drafting of judicial interpretation of the Law on Real Rights Part Four on Security Interest.
Secured credit accounted for more than 80 percent of China's aggregate credit. Therefore,
reform and innovation of legal framework concerning security interest is an important part of
financial infrastructure. Security interest in personal property is one of the most frequently
discussed area in property law system and it is closely related to economic development and
restructuring. Based on the four pillars of an ideal framework of security interest in personal
property, namely wide range of eligible collateral, a centralized registration and public display
system, well-defined rule of priority and streamlined process for implementation, the PBC put
forward 8 proposals, i.e. making account receivables and inventory eligible collaterals,
establishing a floating charge system, protecting bona fide purchase, expanding party
autonomy, defining the rule of priority in a clear-cut manner, designating the institution for the
registration of account receivables, defining the principles for the registration of floating
charge and rules for the registration and charging of security interest, which have already
been written into the Law on Real Rights enacted on March 16, 2007.
Law on Real Rights
The launch of the is of great significance to the development of the credit
market, prevention and mitigation of financial risks and easing the financing difficulties of
SMEs.
SME financing is a worldwide challenge, and it is more difficult in developing countries. Out
of multiple problems such as large SMEs' exposure to operational risks and lack of financial
transparency and banks' difficulties in managing lending to SMEs, the lack of legitimate
collateral is the real bottleneck. Approximately 70 percent of the credit collateral received by
commercial banks in China is real estate, while more than 70 percent of the assets of SMEs
are account receivables and inventory. It was estimated that 16 trillion yuan worth of assets
of SMEs could not be accepted as loan collaterals. Making account receivables and
inventory eligible collateral is an important solution to the financing difficulties of SMEs.
The Law on Real Rights also identifies a dedicated agency for account receivables finance
registration. The PBC's account receivables finance registration and public display system
and the financial leasing registration and public display system started to operate on October
1st, 2007 and July 20th, 2009 respectively. The registration of collateral puts collateral
information on public display and holds third parties involved legally accountable, playing an
important role in protecting legitimate rights and interests of financial institutions as the
secured party. The system also registers factoring business, mitigating legal risks of
commercial banks' factoring business with repurchase agreement attached.
The enaction of the Law on Real Rights has largely filled in the gap in China's legislation on
Law on Real Rights
taking floating charge as collaterals. However, after the was
promulgated, commercial banks have explored taking a mixture of real right as collateral, and
they are promoting innovation to include land use right and rural housing site as eligible
collaterals. What's more, the two registration systems still need improvements in terms of
basis of registration, scope and effectiveness of the registration, underpinning the urgency of
legal definition. These need to be clarified by legislations.
This symposium aims to understand innovative practices concerning collaterals, discuss
issues to be solved in the implementation of the Law on Real Rights, so as to promote
judicial interpretations of security interest to be released as soon as possible based on latest
developments in collaterals and serve economic and financial development in a more
effective manner.
I wish the symposium a complete success.
Thank you.