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Improve the legal system of the Credit Reporting System

Author: ZhouMo
Tutor: LiXiaoAn
School: Capital University of Economics
Course: Economic Law
Keywords: Credit Credit investigate Protection and development Encouragement and punishment
CLC: D922.28
Type: Master's thesis
Year: 2010
Downloads: 126
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Abstract

Credit is a prerequisite for the development of market economies. Credit has shown its increasingly important role in promoting business trading as well as credit consuming. Any establishment and operation of a system are inseparable from its corresponding legal system. Nevertheless, China’s consumer credit system as well as the wider credit economy is still very much behind international standard. The vital reason that resulted in this is the lack of a healthy supporting legal system that monitors our personal credit market. The 2010 yearly government reports has repeatedly emphasized that our state should strive to transform the methods of our economical production. Hence establishing a sounding legal system that supports the development of a more robust consumer credit market can be a solution to the problem of China’s economical production structure, transform it into a more consumption driven market, which at the moment is heavily relying on exporting and investment. This paper argues that scientific credit systems should have two functions, namely, "Micro-functions" and "Macro-functions". Micro-functions refer to its use in helping banks in identifying and eliminating bad customers, hence reducing credit related risks. Macro-functions refer to its general effect in promoting honest and trusting usage of personal credit among individuals in the economy, and for banks to explore potentially high-quality customers and expand operations. Despite its benefits, China’s credit related legal system construction has lagged behind the economical and social development. Credit system has not been playing its dual role in both "disciplinary prevention" and "encouragement and promotion". This leads many individuals into "fear" of using credit and some others into "ignoring" it. This article is a study to learn advanced foreign credit systems, and at the same time its possible applications to China’s specific economical conditions. The author believes that China’s credit screening system should be government funded and commercially operated. Furthermore, the legal system that monitors this credit system need to first establish a clear people-centered mindset, which has a clarified purpose of serving individual consumers, and places the protection of individuals in as top priority. Secondly, in order to folly exploit the credit system’s dual purpose, both "Micro-functions" and "Micro-Functions", the implementation of a fair award and punishment mechanism is also crucial.In our current state, a special historic moment with the financial turmoil and economical downturns, credit system’s "Macro-functions" has a more important role to play than the "Micro-functions", and rewarding more focused than punishment.

Improve the legal system of the Credit Reporting System

Abstract

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