Bankruptcy mechanism on the way

PBOC official: Measures aimed at preventing systemic financial risks

A national bankruptcy mechanism is under discussion by policymakers, covering local governments and enterprises, to prevent systemic financial risks, said a senior official with the central bank.

"The key task is to prevent debt default risk," said Wan Cunzhi, director-general of the PBOC's Credit Information System Bureau, at a news conference on Thursday. He said the mechanism will include indebted local governments, while market-oriented measures will be introduced to ease their debt burden.

Bankruptcy of local governments was rarely mentioned in China before, and the official didn't release more details on the mechanism. It reflected that policymakers have noticed the potential challenges and more measures are expected to strengthen financial stability, analysts said. Total local government debt reached 19.9 trillion yuan ($2.89 trillion) by May, according to the Ministry of Finance.

The State Council released a guideline on Tuesday for building a credit-based market regulation system. The bankruptcy mechanism is one part of the whole system. Besides local government, individuals and enterprises will also be regulated.

Companies with bad credit records will receive serious punishment, said Lian Weiliang, deputy head of the National Development and Reform Commission. "For the worst scenario, the companies could be prohibited from the market."

The measures for rating companies' credit are being drafted, and market-oriented third-party institutions and industry associations will be involved in the rating process, according to Lian.

According to the State Council's guideline, individuals' and companies' credit performance will be recorded in a timely, accurate and comprehensive manner, while targeted regulatory measures will be taken on market entities with different credit levels.

Credit defaulters will be held accountable in line with specific regulations and laws and urged to rectify their irregular practices, it said.

More efforts will be made to enhance credit regulation information disclosure and improve regulatory efficiency by leveraging big data and other technologies, according to the guideline.

The People's Bank of China, the country's central bank, is also building the country's nationwide credit information system, which is composed of a national financial credit information database and market-oriented credit information institutions.

By the end of August, the national database included information on 25.42 million companies and 970 million individuals, becoming the world's largest.

Including internet finance and peer-to-peer lending information in the national system is the next step in the top financial regulators'plan. The system will also include data from securities and insurance companies in the future, Wan said at an earlier conference.

"Information leakage and hacking could potentially be major threats to the credit information system's security," he said. "So far, the system is generally stable, and has not displayed any serious leakage risks."