How Do Property Rights Affect Credit Restrictions? Evidence from China's Forest Right Mortgages

Taking China’s recently developed Forest Right Mortgage System (FRMS) as an example, this paper examines the impact of the strength of farmers’ property rights on the intensity of credit restrictions imposed by lenders. Using the forest right mortgage policy documents we collected from eight key forestry counties (cities) in China’s southern collective forest regions and the corresponding data of 414 surveyed farmers in 24 villages, we quantify the exclusivity of farmers’ forest property rights and the extent of FRMS credit restrictions in the sampled regions, and explore whether and how the strength of farmers’ forest rights affect credit restrictions under FRMS. The results show that there exists a significant mediation effect of the forest rights exclusivity on credit restrictions intensity through its impact on the market value of forest rights. We further examine the relationship between each disaggregated forest right and the FRMS credit restrictions, and find that the strength of farmers’ forestland use rights, transfer rights and benefit rights are all statistically significant in increasing the market value of farmers’ forest right and thereby reducing the intensity of credit restrictions. Based on the analyses we also offer some policy suggestions.