China steps up social credit system for financial market
Published: Mar 29, 2022 10:00 PM
The trading floor of the Shanghai Stock Exchange in Shanghai Photo: CFP

The trading floor of the Shanghai Stock Exchange in Shanghai Photo: CFP

China released a document on building a high-quality social credit system on Tuesday, in a bid to promote the efficiency of supply-demand connection, optimize the allocation of resources and build a sound business environment.
The document includes regulations to guide the financial market. For instance, China will follow the principle of strict supervision, investigate and prosecute serious cases of fraudulent stocks issuance, false statements, market manipulation, and insider trading.
The role of credit will be given full play in financial risk identification, monitoring, management and disposal.
Meanwhile, China will improve market exit mechanisms and explore a compulsory delisting system. Enterprises that are insolvent may go through bankruptcy reorganization or liquidation according to law.
The compulsory delisting rules shall be strictly implemented to establish a virtuous cycle of "survival of the fittest" for listed companies. China will also consolidate the information disclosure responsibility of relevant subjects and enhance market transparency, read the document.
The strict implementation of delisting rules will accelerate the elimination of low-quality and shell companies, which will improve the environment of the capital market, Wang Peng, an assistant professor at the Gaoling School of Artificial Intelligence at the Renmin University of China, told the Global Times on Tuesday.
The document has clarified the credit system in relation to scientific research; intellectual property rights protection; cooperation and connection with international credit systems; promoting finance to serve the real economy through the credit system, and methods of supervision and implementation.
This is a top-level design of China's credit system construction, which defines the scope of the credit system, and stipulates the rights, responsibilities and obligations of relevant subjects, Wang said. 
According to the document, China will explore credit concepts and methods to solve difficulties that restrict economic activities. 
For example, China will encourage the use of credit tools to unleash consumption potential in medical care, elder care, housekeeping, tourism, shopping and other fields.
 "The construction of the social credit system is conducive to the improvement of economic and social operation efficiency, and has a supportive role in economic recovery and development," said Wang.
China's securities regulator has revised the delisting mechanism for listed companies, effective from July 2018.
In January 2021, China's two major bourses - the Shanghai Stock Exchange and Shenzhen Stock Exchange - released revised delisting rules in a zero-tolerance approach for the world's second-largest stock market, after a one-month public opinion solicitation.
As a result, the number of delisted companies from 2019 to 2021, excluding absorption merger delistings, stood at 10, 16 and 20, respectively. 
The number of delisted companies in those three years accounted for 31 percent of the total number of delisted companies in the A-share market, according to an analysis of Haitong Securities.
China vows to strengthen international two-way investment and credit construction for international cooperation, which includes the implementation of the Foreign Investment Law, the improvement of the negative list system, and the protection of the legitimate rights and interests of foreign investment. 
China will step up international cooperation on intellectual property protection, and maintain and enhance its attractiveness to foreign investment.
Also, China will actively participate in international credit governance. It will implement multilateral and bilateral economic and trade agreements reached with other countries, and advance the revision of laws and regulations in accordance with the requirements of further opening-up and China's needs.
"The construction of the social credit system must be integrated with digitalization and intelligence in the future. Technical security is very important as providing enterprise services, personal services and government services requires big data risk control and credit investigation," said Wang.

Global Times