China should have established and refined a social credit system
compatible with the development of its market economy in about 20
years, a report by the Development Research Center under the State
Council has suggested.
The State should focus its efforts on setting up a social credit
system framework that encompasses moral and cultural bases, an
information-sharing mechanism, related laws and a credit regulation
system before 2012, said the report which was originally published
by the China Economic Times.
And then the system can be improved to create a sound credit
environment by 2020.
After more than two decades of reform and opening-up, the
Chinese economy has basically completed its transition from central
planning to market competition.
Market rules now play a fundamental role in the allocation of
resources and credit transactions have become a major business
model.
In recent years, various credit methods such as loans by
banks,sales on credit by enterprises and individual consumption on
credit have been used to boost domestic demand.
However, as the use of credit expands, problems relating to
credit have become a heavy drag on the country's economic
development, the report said.
A large number of bad loans have added to the banking sector's
systematic risks, some firms have gone broke due to extending too
much credit, fraud has been rife in business, there have been fake
information disclosures and excessive speculation, which have
marred the development of the capital market.Credit chaos not only
distorts market order and increases transaction costs but also
affects the market's role in allocating resources, undermining the
government's efforts to stimulate investment and domestic demand,
the report noted.
Bad credit, which ruins the normal contract-based trust between
market players, also results in moral degeneration.
Since China's entry into the World Trade Organization, such
malpractice could hurt the country's image in the international
credit markets.
To address this issue, first, the report suggested that the
State should make more efforts to create a social atmosphere to try
and stamp out bad credit.
Although the public has understood the market economy much
better than two decades ago, a credit culture has not yet taken
root in this country.
The State should enhance credit education through organizations
like schools, enterprises, communities and industrial
associations.
Such educational campaigns will increase the public's awareness
of the issue and encourage it to resist dishonesty in business.
Second, enterprises should be directed to strengthen internal
credit management.
The lack of a sound credit risk management system has made many
domestic enterprises vulnerable to the granting of improper credit,
which can result in the failure to fulfill contracts.
And administrative interference has also made it difficult for
State-owned enterprises to carry out strict internal credit
controls.
The establishment of a sound internal credit management system
is crucial to corporate governance.
Therefore, the government can organize related experts and
company managers to study foreign enterprises' credit systems and
credit management experience to provide consultative services to
domestic enterprises.
Third, an open and transparent information system is a
prerequisite to setting up a social credit system, the report
said.
To throw open basic social credit data, the State should begin
with drawing up laws and regulations to standardize disclosure,
dissemination and the use of public information and credit
investigation data.
In particular, such rules should specify what sort of data the
government and enterprises must release and to whom it should be
made available.
Meanwhile, key industries should be encouraged to set up
information-sharing platforms. Industrial associations have a big
role to play in creating such market-oriented information data
banks.
It is high time to promote the development of the credit
intermediary service, the report added.
While advocating strict requirements for institutions charged
with investigating credit and to try to ensure the correct use of
individuals' credit histories, the report stressed that the
government, in principle, should not invest in or run such
agencies.
In view of the country's conditions, it is better to develop the
intermediary service sector through a market-oriented approach.
Finally, the State should strengthen credit-related legislation
and the enforcement of concerned laws and regulations, the report
said.
In the short run, legislative priority should be put on making
laws related to government information disclosure and credit
investigations on individuals and enterprises.
But on the other hand, efforts are also needed to amend existing
laws and regulations which are incompatible with the establishment
of a social credit system.
(China Daily August 27, 2003)