China in Urgent Need of Social Credit System

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Last updated at: (Beijing Time) Tuesday, April 23, 2002

China in Urgent Need of Social Credit System

China should speed up the establishment of a nationwide social credit system to regulate market order and improve the development environment for small and medium enterprises (SMEs), officials and experts said on Monday.

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Reasons

Chen Hongjun, of the State Economic and Trade Commission (SETC), said setting up a social credit system is essential as China continues its transition from a planned economy to a market-oriented one.

"It is also urgently needed following the country's accession to the World Trade Organization," said Chen, a division chief of the SETC's small and medium-sized enterprises department.

Without a sound social credit system, China would face many difficulties in participating in international competition and attracting overseas investment, said Li Huaping, vice-president of China Chengxin International Credit Rating Co Ltd.

"It would even hamper the development of the country's economy and the improvement of people's living standards," Li said.

Commercial banks are typically cautious about giving loans to private enterprises, especially small and medium-sized ones, due to the risks involved, he said.

Economists said the absence of credit costs 10 per cent to 20 per cent of China's gross domestic product every year and is seriously suppressing consumption and investment.

"The negative effect and losses due to credit problems are great," Li said.

Activities violating credit standards often occur in economic fields due to the lack of a uniform credit system and backward credit management, Li said.

Suggestions

Zhang Delin, director of the SETC's economic laws and regulations department, said the government should play a leading role in establishing a social credit system.

"Laws and regulations should be mapped out to propel the establishment of the credit system," Zhang said.

"They are the basic means for the government to manage the economy. They are also part of the credit system."

In Shenzhen, the local government put into force a regulation on collecting individual credit references and rating management on January 1.

According to Zhang, a public social credit network should be established to help market participants gain basic information.

Professional credit institutions should also be created to provide high-quality services.

On the other hand, the government should beef up supervision, so that market participants who violate regulations and laws can be seriously punished.

China started establishing a social credit system in the early 1990s when the State Council launched a nationwide campaign to clear up triangle debts, Chen said.

Following the campaign, a number of credit rating companies were established, including China Chengxin Securities Rating Co Ltd.

Source: China Daily

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