Lack of credibility causes losses of 600b yuan every year

14:15, May 05, 2011      

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Lack of credibility causes Chinese enterprises to lose 600 billion yuan ($92.36 billion) every year, according to Ministry of Commerce statistics, the Economic Information Daily reported Wednesday.

The cost of credit consultation is often too high, and enterprises bear little cost when they break contracts with suppliers, distributors, customers and the like. So contracts are often broken; fraud and cheating go on almost every day. That behavior threatens the survival of Chinese enterprises, especially small- and medium-sized enterprises, the newspaper reported.

According to the National Bureau of Statistics (NBS), as of the end of Nov 2010, customers owed 6.46 trillion yuan to industrial enterprises above a designated size for products and services which were provided on credit. That total is up 22.4 percent from a year earlier and 8.4 percentage points higher than last year, which, according to the newspaper, signals high risk. "Industrial enterprises of a designated size" refers to all State-owned and other industrial enterprises with annual sales of more than 5 million yuan.

Companies are also facing rising ratios of bad debt. According to research by related departments, bad-debt ratios of Chinese enterprises are as high as 1 to 2 percent.

That ratio continues to grow every year. In comparison, businesses in mature-market economies have bad-debt ratios between 0.25 and 0.5 percent. According to the report, only 50 percent of the 4 billion contracts signed every year in China are fulfilled, the report said.

Chinese enterprises were not optimistic, as one third of the enterprises expected the situation would "never change", the newspaper reported.

Gong Zhao, a general manager of a credit consulting company, said the development of credit consulting could help establish a credit service system in China. He also said the Ministry of Commerce and other related ministries were preparing to establish an association for a credit consultation industry.

Source: China Daily
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