opportunity-china.co.uk
December 2014 27
KeepingChina’s
Credit inCheck
China has submitted a plan on establishing the
nation’s first personal credit database to the
State Council, China’s cabinet, for review. The
country’s banking sector has built up a similar
database that allows users to check their personal
information and financial records online. The newly
proposed databasewill absorb a broader range of
information, including financial records, tax and
social security history and even traffic violations.
T
he database, which is expected to be completed by
2017, involves several stages, including the issuance
of a credit code for both individuals and companies,
based on the identification card numbers or
organization codes. Inmature economies, national
credit databases are useful tools for equalizing competition
across different financial institutions at the same time as
protecting consumers and providing themwithmore options
with regards to seeking sources of credit.
Without a national database, large banks essentially
have amonopoly control on customer information, making it
difficult, if not impossible, for other banks to enter themarket.
Furthermore, if information is not shared amongst financial
institutions, customers will often be forced to carry out their
bankingwith one financial institutionwhile other banks will find
it hard to lendmoney to peoplewithout the ability to conduct
credit checks.
While a national credit databasewould be beneficial to the banking sector as
awhole, it would also have implications on the ability of consumers and small
businesses to get credit; an important aspect considering the numbers of small
businesses that have had to seek loans outside of the banking system just to
keep functioning. Ultimately, the creation of a national credit databasewill not
only encourage fair lending, it will also allow the government to regulate the
lending process.
With regards to consumer protection, under a national credit database,
consumers should have the right to challenge the data if it is wrong. Therefore,
once such a database is established, consumers should be able to gain access to
the information at a reasonable price. But there is some debate as towhat kind
of information should and should not be includedwithin such a database.
Negative credit history data, such as the inability tomeet credit card
payments or loan defaults, should of course be included as part of a credit
database. However, the possible inclusion of positive credit history, such as
mortgage repayments, has thrown up another issue inChina; that of wanting to
remain hidden. Restrictions on owning propertymean that those peoplewho own
more than one apartment will be keen for their information to remain out of sight.
As a result, the inclusion of such data could provide peoplewith an incentive to
seek out less than transparent methods for conducting their personal business,
such as taking loans out under other familymember’s names.
Along the same lines of wanting to hide data that would reveal multiple
properties, according toDr. HuNaijunwith the School of Public Policy and
Management at TsinghuaUniversity inBeijing, a number of government officials
may also resist revealing personal information for fear that their personal wealth
and possibly greedmay be exposed. But according toHu, themotives of some
government officials or departments is not themain obstacle for the creation of
such a database, instead it is the technological capability of the government. As
Hu points out, society is in need of a credit system and the individual power of
thosewhowant to resist “is relatively very small comparedwith the demand of
thewhole society.”
Asmentioned above, the country’s banking sector has already built up its own
database but it remains fragmented. Legislation is vital in order to integrate data
across various databases, which are currentlymanaged by different ministries
in various regions. In order to be successful, Hu suggests that the Chinese
government look to theUS example of creating an overarching body responsible
for themanagement of the national credit database and embrace the role of the
private sector in creating a comprehensive database.
“China should learn from the experience of theUS. In theUS there is a
central bureau (managing) this kind of credit collection and credit management.
Right nowwe do have several kinds of database that are totally different and
independent of each other. If wewant to build a comprehensive and independent
central databasewemust have a strong central bureau to (carry out) every
step of this (process). Inmy opinion I think there should a central bureau
to be responsible for this. But at the same time, I think there is still a need
for cooperation between the government and the private sector. This kind of
cooperation also needs some kind of integration from an authoritative bureau.”
But one of the key factors to ensuring the success of a national credit
database is combatting social mistrust. Historically, people inChina have not
really cherished their credit record and according toHu, the government needs
towork hard in order tomake the general public realise the importance of their
credit history, whether via educational methods or hard fines for thosewho have
abysmal creditworthiness.
anumber of
government officials
mayalso resist
revealingpersonal
information for
fear that their
personal wealth
andpossiblygreed
maybeexposed.
“
