A credit rating system for China's import-export traders is being established to fill in the blanks in this field.

The Ministry of Commerce has authorized the Foreign Trade Enterprises Association and the Beijing Guoshang International Credit Service Ltd to set up the system, which will greatly facilitate the overall business environment.

The two bodies have mapped out rating rules and set up the Credit System Expert Committee.

They will give the ratings based on foreign traders' information provided by the ministry.

Association Chairman Zhang Xiaoli said there will be four rates - A, B, C and D - with the initial ratings being published in the press for public comment.

The rating will be marked according to 18 standards, such as the company's brand recognition, its quality certification, its record in the use of licences and quotas, its record in tax payment, its legal use of intellectual property rights, its trade volume and its financial strength.

It marks the first concrete step toward establishing a credit system for foreign traders as the country is putting increasing importance on establishing a credit-based business environment.

China has become the world's fourth largest trader, but its trade credit system fails to match this standing, said Zhang.

The misbehaviour of some traders, who are seldom punished, has had a negative impact on China's reputation.

"The credit rating and archive we are providing can help foreign companies better distinguish the bad from the good," Zhang said.

Revision of nation's Foreign Trade Law, which lowers the threshold for foreign firms' involvement, increases the need for a comprehensive credit system for foreign trade, said Li Ling, vice-director of the ministry's treaty and law department.

The law, which will come into force on July 1, allows individuals to be the operators of export-import business and removes some restrictive qualifications on foreign trader.

Li said the revised law has added articles for setting up a rating system.

For example, the revised law said there should be a statistics mechanism and illegal operations ought to be publicized.

The revised law strengthens sanctions against illegal operations through adopting more severe punishments, from criminal penalties to administrative penalties and cancellation of operators' qualifications.

The old law had only one punishment - withdrawal of operational credit.

Li said the ministry will stipulate a specific regulation governing the credit system of foreign traders based on these articles.

A company official from the Guangzhou Hongtai Industrial Co Ltd, which is taking part in the rating, welcomed the system, saying it will be very effective.

Foreign companies often encounter difficulties in assessing Chinese companies' credit, which has sometimes made them retreat, he said.

For example, he said a Japanese company signed an agreement with the company after nine months of investigation.

"If there is an official credit-rating system, doing business will be easier for those with good records," he said.

But analysts warned that when a social credit system is badly needed in China, the credit of the system is even more vital. There is no specific government department governing the establishment of a social credit system in China.

A number of government agencies, including the State Development and Reform Commission, the Ministry of Commerce, the Ministry of Public Security and the State Administration for Industry and Commerce, are reportedly drafting their own social credit system plans.

For example, the People's Bank of China, the nation's central bank, is building a huge Enterprise and Individual Credit Management System that covers all of the bank records of the nation's corporate and consumer credit borrowers.

As a result, many companies and organizations began to do this just to make a profit and many companies have a "gimme-a-good-rating-and-tell-me-how-much-you-want" attitude towards credit rating firms.

China's credit management industry is growing fast alongside the rapid development of the market economy, but the estimated 500 credit management firms have been frustrated by the long absence of an industry watchdog and related legislation.

(China Daily May 31, 2004)