Beijing Introduces Personal Credit Ranking System
In a move to bring China's banking system closer in line
with developed countries, Beijing will introduce a personal
credit ranking system throughout the city beginning this
month.
The move comes none too soon. Chinese banks, especially
the big four of Industrial and Commercial Bank of China,
China Construction Bank, Bank of China and the Agricultural
Bank of China, have been affected by bad loans made when
they were directed to make loans to other state owned
enterprises based on policy instead of financial considerations.
The four majors account for 60 percent of the lending
in the country, and have counted on consumer home and
car loans to grow their new good assets, while they buy
time to clean their books of the bad loans. This year,
car loans have shot up as Chinese have opted to buy cars,
and recently, the government has decided to let foreign
auto financing companies in to compete in the local market.
However, the recent growth in car loans has been affected
by the lack of a credit ranking system. The new announcement
is addressed at the problem.
In addition to the four major banks, regional Chinese
banks and foreign banks will also have full access to
the system and database, and will be able to update their
consumer information.
According to figures from the Chinese government, losses
incurred from bad loans total 5.85 trillion yuan, or 37
percent of the gross national product (GNP). In terms
of economic growth, it brings growth down by 2 percent
every year. Annual direct losses from unpaid loans are
1.8 trillion yuan, and losses from unhonored contracts
are 550 billion yuan.
For the Chinese government, putting China's financial
house in order to meet WTO requirements are very important,
as beginning in 2006, non-Chinese banks will be allowed
into China to offer retail banking services on the same
basis as Chinese banks. The banks are not able to clean
up their assets on their own, and to one degree or another,
will rely on the government to get them into shape.
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