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Microcredit Lenders Spin New Business in China’s Cashmere Capital

By Huang Ziyi and Li Rongde
A local owner of a cashmere wool plant checks on his online shop from a laptop in China's northern Hebei province. Photo: Ant Financial Services Group
A local owner of a cashmere wool plant checks on his online shop from a laptop in China's northern Hebei province. Photo: Ant Financial Services Group

(Qinghe county, Hebei province) — Yang Dechao has done a brisk business in his new career since he returned to his hometown of Liulin, Hebei province, in 2015.

Yang, 33, has been working as an e-commerce agent accredited by companies that run online marketplaces, such as Alibaba Group Holding Ltd. His job is to help local business owners open stores on e-commerce sites like JD.com or Alibaba’s Taobao.

He also helps set up online payment accounts and offers referral for small loans from microcredit services to the business people of the area, known for decades for its vi-brant cashmere wool industry. Qinghe county, where Liulin is located, is home to hundreds of small mills, many of which operate out of simple farmhouses.

Yang, who left for college in 2007, said his family has bought three cars with money he’s made from the job in less than two years.

Embracing e-commerce has bolstered the local industry by helping these small cash-mere manufacturers reach distant customers, preventing many villages in Qinghe county from disintegrating into ghost towns seen in other parts of rural China.

Microcredit lenders are tapping the trend in many villages and towns in Qinghe by helping them to grow, but it remains in question whether what is happening in the county can be repeated in other rural areas, where young people are fleeing in droves for better jobs in the cities.

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Yang Dechao’s parents work at the family’s cashmere wool mill. Photo: Ant Financial Services Group

Cashmere capital

In Liulin, a village of 800, few young people have left for the cities. Instead, they have stayed, establishing online stores to sell cashmere products, said Xie Rongyao, deputy head of the town of Youfang, which administers the village.

In fact, many of those who left for work elsewhere years ago are returning to ride the tide of e-commerce, he said.

Qinhe county, about 360 kilometers south of Beijing, is considered China’s capital of cashmere wool. The county accounts for 40% of global trade in cashmere products, according to county government statistics. Each year, local cashmere wool mills churn out 20 billion yuan ($3 billion) or more in cashmere fabric, sweaters and overcoats.

Li Benlai, a Liulin native who operates a small cashmere wool manufacturing plant, has hired seven new workers to cope with rising demand since he moved online at the beginning of 2016, he said. This year, his plant has doubled in size.

“We manufactured 500 tons of cashmere products last year and output is likely to ex-ceed 1,000 tons this year and bring in 10 million yuan in revenue,” he said.

Local cashmere business owners like Li usually make between 10% and 15% in gross profit, he said.

With their newfound wealth in e-commerce, many families in Liulin have moved into larger farmhouses of two or three floors. The situation is similar in other villages in Qinghe.

Looking for loans

However, many small businesses in Qinghe county remain beset by a lack of access to bank loans to help them grow.

Large financial institutions are reluctant to lend to small business owners due to the higher perceived risk of default, Li said. The village’s small businesses have struggled to come up with enough money, particularly between May and August, when they need to stock up on raw cashmere wool for the year, he said.

Bank loans made available to small businesses, including those operating in rural areas, account for only 8% of the total loans made by Chinese financial institutions in 2016, according to the 2016 China Financial Inclusion Development Report.

As the concept of e-commerce reaches more rural areas in China, private companies and government-backed institutions offering microcredit services have taken note of the situation.

Ant Financial Services Group, an online payment service provider backed Jack Ma, co-founder of Alibaba, made a foray into online microcredit lending for rural custom-ers at the beginning of 2016.

The company has lent out more than 400 billion yuan to nearly 1.6 million small businesses in rural China, said Zhang Lin, deputy head of Ant Financial’s rural fi-nancing department.

Small rural business owners, regardless of whether they have a conventional credit history, can borrow up to 500,000 yuan for a period of six months to 24 months with a reference from someone in their hometown and a referral from an e-commerce agent accredited by Ant Financial, Zhang said.

One-third of the 150 families in Liulin have borrowed money from Ant Financial, which alone has issued 112 small business loans totaling 5.62 million yuan, according to data from Ant Financial.

With help from Yang, the e-commerce agent in Liulin, Li said he was able to secure 300,000 yuan in loans from Ant Financial for two straight years, though the amount remains small in comparison with the millions his business needs each year.

Copying one village’s success

The rise of e-commerce in Liulin village has been dubbed by some industry analysts as the “Liulin phenomenon.”

For other villages in China to repeat the village’s success, they have to be strong in a particular industry and foster greater expertise in e-commerce among their residents, Zhang said.

“Take Qinghe county as an example. The place already had a bustling cashmere in-dustry and trade with the outside world, which gave its small business owners a better understanding of the power of information,” he said. “Those e-commerce agents are also critical because they serve as a bridge between local farmers and e-commerce operators like Alibaba.”

Contact reporter Li Rongde (rongdeli@caixin.com)

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