Credit Vital in China's Market Economy

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Last updated at: (Beijing Time) Saturday, March 09, 2002

Credit Vital in China's Market Economy

"Credit" has never been so concerned by the Chinese people today, as they have for the first time realized that a credit-defficient society cannot secure a place in the world.

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"Credit" has never been so concerned by the Chinese people today, as they have for the first time realized that a credit-defficient society cannot secure a place in the world.

In recent days, there has been a flood of proposals from NPC deputies and CPPCC members, calling for the building of a social credit system in response to what Premier Zhu Rongji said:"...make those with bad record of behavior pay the price and even bring them to book."

The participants in the ongoing annual NPC and CPPCC sessions share the view that the lack of credit has become a "bottleneck" restricting the economic development and threatening financial security and that without a sound social credit system, China would be barred from the world.

The credit conditions across the country are indeed distressing, said Zhang Dachun, an NPC deputy from Jiangsu Province, citing such cases as cheating, black-box dealings, counterfeiting, repudiating debts and evasion of tax. "These evils cannot be tolerated in a market economy and constitute the biggest challenge and trouble China faces in the WTO big family," he said.

For many years, the Chinese government has been enjoying a good reputation in the international community. "If Chinese enterprises fail in 'integrity', they would damage the image of not only their own but also the country," he noted.

According to economist Zhou Jinfeng, some 90 percent of business deals in western countries are settled on the basis of integrity. But China's market economy was born out of planned economy and it has a weak foundation of credit. "After the accession to the WTO, the first thing China faces is the exchanges with credit-based economies in international trade," he said.

Xie Qingjian, president of the Nanjing branch of the People's Bank of China, said that commercial cheating, vicious debt arrears or escaping debts and arbitrage are frequent, presenting serious hidden dangers to economic and financial security.

"These malpractices have not only distorted economic relations, but also increased the cost of trading, ruined social conventions, and impaired the development of the market economy," Xie said.

The negative effect and losses due to creditability problems are huge. Among the 60,000 enterprises that open accounts with the four major state-owned commercial banks, more than half have been found to have escaped debts, leaving a great amount of bad debts in the commercial banks.

It is estimated that forged and shoddy goods cause an annual loss of 200 billion yuan, and the amount of financial expense added due to debt chains and cash transactions tops 200 billion yuan.

"Credit is the life-blood of a market economy. To build China's credit system is of vital importance in guarding against financial risks," Xie Qingjian said.

A low credit rating will inevitably affect international cooperation and the inflow of foreign capital. Many Chinese specialists proposed laws on social credit in order to secure a normal economic order and regulate the behavior of enterprises and individuals.

The modern information networks would make a universal social credit system possible, according to the specialists.

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