I Can See The Credit Card Offers Now

My previous post on China dealt with the challenges around patent infringement.  Here's a story with a slightly more positive spin.  China has put in place a central database with credit histories on 570 million people and 12 million businesses.  This has enabled Chinese banks to improve the credit environment in the country.  Prior to the establishment of the database, banks had no effective way to assess credit risk.  As a result, they typically only granted mortgage loans.

An excerpt from the Shanghai Daily article here:

The databases help commercial banks curb the credit risks by finding out how many loans businesses and individuals are paying off, said Su Ning, deputy president of the bank.

Many commercial banks resumed offering credit loans since 2006 when the database was put into use. Prior to 2006, most banks only offered mortgage loans.

Many defaulters have actively paid back their loans to banks since the central bank announced set up the database, Su said.

The World Bank Group recently made an assessment on China's business environment, concluding that China's credit index grew by one percentage point to four percent after the database was set up, much higher than the average credit index in Asia of 1.9 percent, Su said.

Foreign institutions said one-percentage point growth can drive the gross domestic product up 0.9 percent, Su said.

For the full article, click here.

Institutional knowledge of borrowers' financial obligations and payment history is essential to efficient credit markets.  Reliable borrowers will be able to borrow more easily and hopefully at better rates.  Now, if they can just get the credit card companies to stop stuffing their mailboxes.