Trust as important as cutting red tape for investment in China

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Trust as important as cutting red tape for investment in China

(Xinhua) 08:40, November 01, 2013

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Creating a system that builds business trust will undoubtedly be high on China's agenda after the State Council decided to relax company registration requirements at the weekend.

Overseas analysts say only giving full play to such a system can stimulate the vitality of social investment in China.

According to the State Council executive meeting, perfecting a regulatory and legal system that builds confidence in the business sector is as important as lowering the cost of starting a company and encouraging social investment.

As an important part of the Chinese government's administrative reform, building a system to track corporate credit information and help create an efficient and fair market environment to mobilize social capital has won recognition from overseas economic experts.

"This will definitely have an impact on China, which is on the track of transformation," UBS Wealth Management for Asia-Pacific Investment Pu Yonghao told Xinhua.

The lack of an effective mechanism for evaluating companies had a negative influence on their financing and running, he said, explaining a lot of small- and medium-sized companies had faced difficulty obtaining finance from banks.

Moreover, the ineffective system bred serious incidents that harmed public health in the past few years, he said, referring to the food safety issue which has caused a loss of confidence in some industries and even created a confidence crisis in the whole society.

The New York Times has pointed out lack of trust would curb China's development, while honesty and integrity would help.

Former WTO director-general Mike Moore has said China does not lack technology, funds or talent, but is in urgent need of a mechanism that will help it adapt to fair and transparent international competition.

With it being easy to start a company, the trust system must be tightened in order to prevent business fraud and create a fair and orderly market environment, said Yuming Ying, managing director of China Eagle Asset Management Ltd.

As China undergoes economic transition, those crises of trust that repeatedly happened to Chinese enterprises not only undermined consumer confidence, but also hindered the social capital from entering the market, Ying said.

Promoting the establishment of a credit system among enterprises will encourage corporate self-discipline, which will in turn boost the confidence of social investors and stimulate the enthusiasm of private investment.

In fact, there are a number of Chinese enterprises that have achieved business success by observing a creed of honesty and trustworthiness.

Haier Group, China's largest home appliance manufacturer, has won the trust of its consumers with its motto -- "Sincere Forever", while "Trust and Integrity" are among the basic values of Lenovo, one of China's leading tech firms. For Chinese e-commerce giant Alibaba, its online business platform is based on the honesty and trust of both buyers and sellers.

However, a sound regulatory system can not be built in one day, but needs the participation of other aspects along with the enterprises themselves.

Pu said the government should build the system and supervise its implementation in accordance with law. Meanwhile, media supervision should be supported.

Last but not least, a moral system should be promoted to create an atmosphere of integrity that extends from enterprises to individuals. Only in this way can the whole society be joined together to realize a society of honesty and trust, he said.

It is obvious the Chinese government will place openness and transparency at the heart of its future business regulatory system.

Analysts said that as the founder of systems, the government should play their roles in arbitration well, and ensure the implementation of relevant legal procedures. ' In addition, the government should not discriminate between private and state-owned enterprises, they said, adding that it should also prevent any kind of power rent-seeking and enhance market regulation so the reform can set down roots and bring benefits.

The new government's determination for reform is clear-cut and how it guides the expectations of society, enterprises and individuals is also crucial, said Pu.

To create an enterprise credit system in a real sense as well as a fair and sound market environment was especially critical for stimulating social capital, he said.