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Rural venture investments with credits mortgaged on farmer's forests—A case study of Zhejiang, China

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  • Shi, Daojin
  • Chen, Lunsong
  • Wang, Xiaoli
  • Xu, Xiuying
  • Yang, Lixia

Abstract

This study investigates how a seemingly innovative arrangement—using the non-public forests designated for ecosystem services by the government as collaterals to borrow from financial institutions—has mitigated the credit constraints and benefitted the rural enterprises. Based on data generated from two recent surveys of 856 households in 14 counties of Zhejiang, China, our econometric estimations show that an increase in the lending by 10,000 yuan leads to the likelihood of venture capital investments increasing by 20%, and the income generated from them to gain by 18,500 yuan. On the other hand, when the lending interest rate is raised by 1%, the likelihood of engagement is reduced by 3%, and the income generated is reduced by 3600 yuan. Moreover, unlike better-off farmers, those with low assets or other low capabilities are more sensitive to the lending interest rate, rather than the size of the loan. These findings have major policy implications to the continued growth of rural business and sustained development of rural society in China and many parts of the world.

Suggested Citation

  • Shi, Daojin & Chen, Lunsong & Wang, Xiaoli & Xu, Xiuying & Yang, Lixia, 2022. "Rural venture investments with credits mortgaged on farmer's forests—A case study of Zhejiang, China," Forest Policy and Economics, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:forpol:v:143:y:2022:i:c:s1389934122001277
    DOI: 10.1016/j.forpol.2022.102814
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