As reported on www.biia.com and https://2018.biia.com/cci_industry_news.php the Chinese Legislative Affairs Office of the State Council (SCLAO) has issued a consultation paper outlining the basis of proposed legislation on consumer and commercial credit reporting as well as credit rating industries.  In essence regulating three industries, which serve different purposes, have different customer bases and use different sets of data with one omnibus bill.  Included are provisions such as: Consent is required from the subject of a credit report, whether a consumer or a business, before the data can be collected and distributed; poorly defined licensing requirements and inspection regimes, high thresholds for startup capital and severe liability provisions.  

Of great concern for the credit information industry is the proposed new role of the Credit Reference Center (CRC), China’s credit bureau on consumer and commercial loan data.  The CRC will be exempt from this regulation and will be permitted to compete in the future with the private sector.  It currently serves only the Chinese banking sector.  The CRC is owned and operated by the regulator, the People’s Bank of China (PBC).

Users and suppliers closed ranks:  One of the immediate reactions to this legislation has been a closing of ranks between users of credit information and information suppliers and their respective associations.  This has not happened very often in the history of credit information.  There is a general consensus that having one omnibus bill will complicate matters and may be unworkable. 

The concern of users of information are that the extension of trade credit will become more difficult: 

  • Fewer sources of credit information:  A proposed minimum threshold of RMB 50 million capital requirement will force many current suppliers to close down
  • Consent is required from a business to collect relevant information about them: This will impair the ability to collect information in a timely manner and the completeness of information required to make an informed credit decision.  Credit risk and losses will increase.
  • Consent is required from the subject company of an inquiry to be able to distribute the information. This will impair the availability of timely credit information.  Loss of transparency.
  • Disclosure of the source of and recipient of information: Business relationships between buyers and sellers of information as well as relationships with sources of information are confidential. As a result of the disclosure of the source of information trade information will no longer be available as a valuable resource for credit managers.
  • Liability: Regulators seem to think that quality norms can be regulated by imposing criminal sanctions of violations. Criminal sanctions would cause many information companies to withdraw from the market. Unreasonable regulations and compliance thereof will increase the cost of information.

The concern of users of information are that the extension of trade credit will become more difficult: 

  • Fewer sources of credit information:  A proposed minimum threshold of RMB 50 million capital requirement will force many current suppliers to close down
  • Consent is required from a business to collect relevant information about them: This will impair the ability to collect information in a timely manner and the completeness of information required to make an informed credit decision.  Credit risk and losses will increase.
  • Consent is required from the subject company of an inquiry to be able to distribute the information. This will impair the availability of timely credit information.  Loss of transparency.
  • Disclosure of the source of and recipient of information: Business relationships between buyers and sellers of information as well as relationships with sources of information are confidential. As a result of the disclosure of the source of information trade information will no longer be available as a valuable resource for credit managers.
  • Liability: Regulators seem to think that quality norms can be regulated by imposing criminal sanctions of violations. Criminal sanctions would cause many information companies to withdraw from the market. Unreasonable regulations and compliance thereof will increase the cost of information

The unintended consequences will be too severe on the Chinese economy and the trade credit environment.   BIIA and the user community therefore recommend a thorough review of the impact of such regulation on the trade credit environment and to revise the draft regulations accordingly.

When the story broke on October 12th a group of dedicated BIIA members assembled and worked literally around the clock to study the implications of the proposed legislation on the credit information industry and its users and to formulate an appropriate response.  BIIA filed its response with the SCLAO prior to the expiration of the deadline November 1st BIIA is aware that some of its members and other industry players have filed individual responses.  A number of domestic and international institutions and associations have also filed their comments. 

BIIA appreciates the efforts of the members of its regulatory committee and the many allies we were able to engage in this important effort:  Source:  BIIA

BIIA Newsletter November – December 2009 Issue