Existing without Equity: is the floating charge a successful importation in China?

Lei Zhang discusses China’s efforts to develop a coherent and comprehensive financial system corresponding to the worldwide financial boom, considering the potential role of the floating charge as a security mechanism in financial system regulation and insolvency process, enabling creditors to control loan risks and consequently lowers the cost of credit to debtors. The importation of the floating charge was contemplated to improve the financing ability of companies and therefore accelerate the financial liquidity in the Chinese market economy. It was expected to facilitate the development of privately-owned small and medium enterprises under “policy-lending” context, where the Chinese government controlled bank lending mainly towards state-owned enterprises. However, those conceptual advantages can only be achieved if the floating charge can operate in the host legal environment efficiently and harmoniously. The author explains that since the floating charge is a product of equity, there are many problems faced by Chinese legislators.