Personal credit vital
LI QUNHUAN
2005-03-09 09:51
Establishment of a personal credit system is expected to stimulate slack domestic demand, which is key to keeping the economy on a fast and healthy track over the long term.
China's spectacular economic growth is mainly driven by investments and exports, while the contribution made by domestic consumption is insignificant.
The government's decision, last year, to shift its proactive fiscal policy to a more-prudent one, and the unfavourable external environment for world trade this year, means, if China's economy is to remain on the fast track, a new engine must be found to propel its growth.
Domestic consumption is that engine.
China's per capita gross domestic product (GDP) already exceeds US$1,000, the level at which consumption-structure upgrading usually begins.
To drum up domestic demand, the government has, time and again, encouraged personal credit consumption. But its impact on the economy is not as dramatic as once expected.
For example, China has introduced auto credit, education credit and housing credit in recent years.
However, to get credit, there are complicated procedures, and that has prevented the business from taking off. As a result, such measures have done little to spur domestic consumption.
The lack of a personal credit system is the main culprit behind the complex procedures involved in getting credit and banks' reluctance to issue credit.
Obviously, the lack of such a system is also hindering the expansion of domestic consumption, which is badly needed to keep the nation's economy on the fast, and healthy, track.
In addition, nurturing credit-based consumption is, and will be, a focus of China's credit policy, both now and over the long term, indicates a report released by the People's Bank of China (PBOC), the country's central bank.
However, the risks associated with credit consumption should not be overlooked, the report warned.
To minimize the risks, the report proposes a personal credit system be established.
In China, losses resulting from credit fraud have been estimated at 585.5 billion yuan (US$70.5 billion) since credit cards were first issued in China.
That accounts for nearly 37 per cent of China's annual revenues, and cut nearly 2 percentage points off last year's GDP growth in China.
In developed countries, individual credit accounts for more than 50 per cent of banks' total lending, while the figure in China is about 10 per cent. That suggests their is room in China for the individual credit business.
But, as stated, a personal credit system must be established first.
A sound, effective personal credit system must be built on two preconditions: A complete personal credit data collecting mechanism, and a well-regulated personal credit assessment system.
The main task of the personal credit data collecting system is to collect an individual's credit data.
There are two ways of collecting an individual's credit data. One is from banks. Banks have their borrowers' credit records, which are collected from the loan application forms.
The other method involves specialized credit management agencies, which will provide borrowers' credit reports.
While the personal credit data collecting system accumulates the raw data, the personal credit assessment mechanism rates an individual's credit, based on the data.
In that sense, the credit data collecting system is a prerequisite for conducting credit-related business.
A credit data base could drastically lower risks and losses.
A World Bank study, released last year, indicated large banks could reduce credit defaults by 41 per cent, while small banks could reduce defaults by 78 per cent by using such a data base.
Also, a data base is needed in other sectors.
Now, many employers are paying increasing attention to their employees' credit records.
And rampant fraud and cheating in business highlights the need for such a system.
The introduction of such a system would improve market order.
In China, the mounting bad loans cropping up in auto and housing credit reveals the urgency of setting up a personal credit system.
By the end of last October, banks reported a staggering 100 billion yuan (US$12 billion) in bad loans out of 183.3 billion yuan (US$22.1 billion) worth of auto loans.
That not only adds more risks to our financial system, but also hampers our economy.
There is some good news.
There will be a breakthrough in the creation of a personal credit data base in China this year.
A personal credit data base, which covers seven cities, has been tested since last December.
A nationwide personal credit data base will become one network this year, which can be accessed by all qualified commercial banks and rural credit co-operatives, PBOC officials said.
This is a giant step forward, and is expected to stimulate the development of the individual credit business.
That will not only contribute to economic development, but will help nurture a credit culture in China.
The author is an economist with Analysis Points Associated Consultants, a private think-tank based in Beijing.
(China Daily 03/07/2005 page1)
chinadaily.com.cn |
