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Credit Culture Comes to China

China's banks can expect to be able to find credit records for all their customers, both corporate and individual, through a national network, two years from now.

The People's Bank of China, the country's central bank, Friday announced that there were plans to complete the building of a national corporate credit record system by the end of this year and a national personal credit record system within two years.

The announcement was made by Dai Xianglong, the bank's governor, who was speaking to the central bank's major officials and executives from China's major commercial banks at a working conference in Beijing.

The building of the systems will be a breakthrough in China's financial sector -- and the country's entire business world -- as Chinese banks have long been troubled by the absence of such systems.

The credit record system is crucial for financial institutions, who need to be able to check the repayment activities of borrowing enterprises and individuals to avoid financial risks and need records of people or enterprises that have shown a tendency toward debt repayment defaulting and dodging.

The building of a national corporate credit record system is expected to be relatively easy as each of China's provinces already has its own network, which all commercial banks have access to.

The remaining work will be to connect the provincial networks so banks can also check the records of enterprises incorporated in different provinces.

The building of the personal record network will also not start from scratch. The central bank has been experimenting with a system in Shanghai since June 1999.

Some of the bad loans Chinese banks are burdened with are incurred by a lack of credit information about borrowers.

Under the old planning system, all enterprises, including banks, worked according to plans set out by the government.

If enterprises could not pay back their loans, the government would take care of it.

But the planned system is disappearing in most of China's business sectors. However, due to the absence of a mature market economy environment, many Chinese enterprises still have not developed the habit of paying back loans promptly. Some of them even use loopholes in regulations and in bank management systems to dodge their debts.

The significance of a personal credit system has also been highlighted recently as China's consumer credit services, most of which were launched in 1998, have begun to grow rapidly.

"China desperately needs a credit culture," Wang Xuebing, president of the China Construction Bank, said recently at a business forum.

Besides the building of the credit record systems, the country needs to do much more, such as to improve the legal system.

"The government needs to make special efforts to educate society about the credit culture," Wang said.

At the working conference Friday, Dai said that the central bank will also sponsor the improvement of the financial information system, which covers macroeconomic data such as money supply and loan growth. This information is important for economic policy makers.

The system will also contain smaller items like information about senior managers of all the financial institutions.

Insiders say with this information, it will be easier for regulators and bank executives to track down those that have committed wrongdoings.

(China Daily 04/28/2001)

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