A national credit system could play a key role in China's economic development. At last, the nation would be able to mitigate an annual cost of some 590 billion yuan (US$71 billion) arising from the present lack of such a system.

Zhang Xinze is director of the Statistics Department of the People's Bank of China, China's central bank. He has announced completion of a new report entitled "The Enterprise and Individual Credit System." The report has been produced by the National Enterprise and Individual Credit Special Group, which is sponsored by the People's Bank. Assistance was provided by dozens of state ministries and commissions including the State Economic and Trade Commission, the Ministry of Public Security and the State Administration of Industry and Commerce.

The report is currently at the consultative stage with public response invited. Following consultation it will be submitted to the governor of the People's Bank and the State Council, China's cabinet, for review.

Experts in the field looking for huge annual cost savings, have high hopes for the long sought after national credit system thought necessary to play a key regulatory role in national economic development.

Following State Council approval of the report, there would be a trial period before the proposals would become promulgated as law.

The report identifies the main components of the national credit system as the legislation, the mechanism, the implementation plan and the standards. For now, the state will not deal with specific credit rating standards but rather leave those to the market. The blueprint is for a national credit system operating at the macro rather than at the detailed level.

Zhang Xinze said: "The factors influencing credit systems vary from country to country. It will not be necessary to follow either the US model described as 'the government builds the stage and the enterprises put on the show' or the European model of '"the central bank leads and government operates the system.'" In fact, all countries still need to learn from each other.

"What can be confirmed at this time is that the credit system will be operated in a manner appropriate to a market economy. The government will not be the sole arbiter of credit ratings. Moreover, the government will limit its role to one of providing original credit data. The business of generating and providing credit ratings will be a commercial activity carried out by the organizations providing a credit rating service. Different credit rating providers may use different indexes and rating methods so credit rating reports from different sources may vary somewhat," he said.

Zhang said, "The central bank will not unify the various crediting rating standards now adopted by various commercial banks. It is the individual commercial bank's own rating report that has the crucial role. Credit ratings originating from other sources can only be regarded as references."

According to Zhang Xinze, when commercial banks are considering whether or not to grant loans to clients, they rely on an internal credit rating established in accordance with the Basle Accord, the international standard for assessing risk. They also take cognisance of references provided by external credit rating reports. The biggest market for the provision of credit ratings still lies with the commercial banks.

Zhang Xinze was asked whether China will set up an individual credit account, similar to the Social Security Number in the United States. He said that the national credit system described in the central bank report took a broad-brush approach to the mechanisms of credit rating. It did not deal with the detail of specific provisions for interaction among the banks, customs and taxation authorities, public security departments and other state units.

Many ministries and state commissions are themselves preparing for the national credit system. The Ministry of Public Security is working on a new identity system that could unify a citizen's ID number, passport number and driving license number. The national taxation department is working on a "Bank-to-Tax" project aimed at connecting the banks with taxation departments. However these moves are not part of the central bank initiative.

Zhang Xinze said that the ministries and state commissions establish their databases and collect information to meet the needs of their internal systems and so improve efficiency. Each has an information base specific to its own functions and not connected with the national credit system proposed by the central bank.

Specialists in the field consider the development of a national credit system to be an enormous project requiring a systematic approach. It will depend upon coordination and cooperation among state ministries, state commissions, enterprises and individuals.

The plans for the national credit system mark the first step in the long march to build up a comprehensive credit system to match the systems of Western developed nations. Once the national credit system has been established, it will make a significant contribution to China's economic development. At last the nation will have a means of tackling the abortive costs of around 590 billion yuan (US$71 billion) arising from credit risk.

(china.org.cn by Alex Xu, September 10, 2002)