Some Coal Money Is Said To Be Flowing Into Microfinancing

This morning, read this article that says as coal mine owners exiting the industry, some of them are putting their money into private lending.

The article says that the global financial crisis has accelerated the coal industry consolidation, which also coincided with the mandate from Beijing to improve safety. As a result, many small coal mines are shutting down or being merged into larger operations. Their owners welcome the chance to wash their money clean and become stock-holding capitalist.

The article didn't cite a source but says that as much as RMB 300 billion ($40 billion) is looking for new investment targets. Some of that has ventured into private lending. According to this article, in the first half of this year, dozens of small-loan lenders have registered in Shan Xi province, bringing in about RMB 15 billion/$1. 8 billion. The majority of it is said to be from old coal money.

I think this is great news if it is true. Rural China needs credit, but the government's policy focus has been more on the fiscal side (tax, subsidy) than on monetary (credit market). At the same time, there are signs that rural China is rebounding after years of neglect and (land, labor) depletion (according to orthodox Chinese Reform-ology, the rural areas was the first to benefit from Deng's Reform in the last 70s. Then withered in the 1990s as industrialization intensified) As the central government trying to "bend the curve" on wealth gap between rural and urban areas, private capital should find it a hospitable environment in the country side.

There will be concerns whether those coal mine owners won't turn their blood money into a usury business, I am sure. But just having them registered, it bring some accountability to the table. Consider the alternative, say like AIG selling credit swaps but chose to be regulated as a pure insurer? Those poor, ignorant Chinese country folks still have long way to go :)

While the World Maybe Flooded with Microfinance Loans, China Has A Different Problem

Recently, there have been much discussion about whether a Microfinance (MF) bubble is brewing. Articles in the Wall Street Journal and the Economist pointed out that in some MF markets, there have been an excess of credits, distorted lending incentives (agents are paid by how much they lent out, not how much repaid) and an increasing portion of the loans being used toward non-productive activities (e.g. weddings).

This may be the case somewhere, but there is little evidence that there is an excess of private capital in China's MFI market. Despite the high profile stimulus spending the government initiated earlier this year (nominally $600 billion, a more conservative estimate put it below $400 billion), there is little sign that the money has trickled down to relieve the private credit market (at least, not so much as to jump out to me when I found time to scan the landscape). I would imagine that the government may have budgeted some of the money as a public-funded MF pool. Yet, I haven't heard anything concrete to backup this assumption.

The fact that I have not heard any voice of dissent over the lack of stimulus in MF in China tells me two things -
1. The credit market is till tightly controlled by the government
2. MF lacks its own advocate in the leadership circle

On the first point, my belief is that the 1997 Asian financial crisis has left a lasting impact among Chinese decision makers. Somewhere I read the story that Freud became who he was all because of an incident when, as a boy, out of curiosity or mischief, he hid in his parents' closet and witness "how babies are made", so to speak. I suspect the trauma of witnessing S. Korea going down on its knees slowed the financial marketing liberalization for several decades at least.

On the second point, it is just consistent with the fact that China, as a polity, is a strictly top-down society. Civic organizations--being professional, communal or financial--are always looked upon with suspicion and kept on the margin.

I don't know when I am going to post the next entry. It has been pretty busy recently. I always wanted to do a comparison between Wokai and Kiva. Just to see where Wokai could improve (e.g. user experience, communications, etc.)