Design Into The Risk Management Strategies Of CDB Yunnan Branch In Loan To Shanty Town Projects

Shanty town is a showcase of the development of a city,also representing the fairness of a society,the right to the survival and development of the mass people.It is also heavily involved in such concerns as creating a stable and harmonious society.Both the developed and developing countries have experienced or are currently addressing the issues in renovation of shantytowns(slum areas,affordable housing).This paper is intended to study on the risks and solutions of the financial support from the China Development Bank Yunnan Branch(hereinafter referred to as " CDB Yunnan Branch")to the shantytowns project(hereinafter referred to as " Shantytowns renovation project"),which,listed among the local government procurement projects,has special requirements on the funds,that is,low cost,big money and long-term.For financial institutions,the ultimate risks for government's financing lies in the financial payment capacity which include financial revenue and expenditure capacity as well as refinancing capacity,etc.At present,most of the local governments are with high debt ratios.It is even more problematic for the less developed provinces where shanty towns are widely distributed but financial performance is depressing.There lying a big risk in bank to fund a shantytown renovation project where the local government has poor capacity to borrow and repay a loan while profit-making capacity of the project itself is less satisfactory.A study has found out that the poor profit-making capacity in the business operation of the project considerably contributes to the risks in the shanty town renovation project.A survey has shown that the to-be-resettled residents' reluctance to remove or claim for an unreasonably high compensation,too large investment in supporting projects and gloomy sales in commercialized land and commercial properties impair the profit-making capacity of the project in its commercialized renovation.As a result,the shanty shown project fall into a burden of the government and finally increases the bank risks.In the shantytowns renovation projects,the funds from selling land and commercial properties are the major sources of repayment.China is seeing an economic downturn currently,but the land price reaches a historical high while the demands on the lands are poorly-motivated in the less development areas.The bank has great concerns in the repayment of loan from selling land and commercial properties.Finally,the government shall shoulder the repayment responsibility.Therefore,it is greatly important for a bank to help the local government to set up an effective commercialized operation mechanism so as to secure the repayment funds and safeguard risks.This paper is intended to promote the shanty shown renovation by splitting the shanty shown project with a mixed ratio of renovated projects and commercial projects taking advantage of thebooming performance of commercial property development,following the philosophy of lowering the transaction costs and being business-oriented,based on the theory of developmental finance and based on the experience and historical practices of the developmental finance in supporting the local government to improve the infrastructure by use of land,also considering the high debt ratio of local government,the current economic downcast,the historically high land price and climbing inventory of commercial houses.A sustainable development of shanty shown renovations is well expected by curtaining the project transaction costs,creating a commercialized profit-making operation system while the risks well controlled by a feasible business environment.