The credit rating campaign for 2006 targeting China's foreign trade companies formally got underway on Monday, the Ministry of Commerce has announced.

 

Initiated by the China Shippers Association (CSA), which is under the ministry's jurisdiction, the campaign is designed to stem business fraud and establish a sound credit system in the foreign trade sector, said a circular.

 

Due to lack of a credit rating system, the level of bad debts of some Chinese foreign trade companies was as much as 30 percent which is far higher than the average 0.25 to 0.5 percent of their western counterparts, said Chen Xinnian, director of the Consumption Research Office of the Economy Institute of the State Development and Reform Commission.

 

Calling credit rating an "urgent task" Chen said that only after a nationwide system consistent with international practices was established could domestic companies cut their transaction costs and trade risks.

 

The circular says that domestic companies in the import and export business should submit their credit records by December 31 to the Beijing International Business and Credit Assessment Company (IBD-Credit) for preliminary evaluation.

 

The IBD-Credit, with authorization from the ministry, will make quantitative analysis on the financial health of a company including its assets, profitability, solvency, cash flow, operating efficiency and growth potential.

 

An expert panel affiliated to the CSA would then review the preliminary rating results and base their final judgment on a comprehensive evaluation of the records from departments like the customs, taxation, industry and commerce and banks

 

Since the first such campaign got underway in 2004 nearly 1,000 companies have had their credit status rated. The rating is valid for five years and requires an annual review, says the circular.

 

(Xinhua News Agency June 6, 2006)