Credit Guarantee Legal System in China

 

 

Keywords: credit guarantee, judicial interpretation, enterprise, risk prevention, property, capital financing  

 

1. Actuality of Chinese SMEs credit guarantee legal system

 

Both the Guarantee Law of the People’s Republic of China enacted in 1995 and the judicial interpretation of the guarantee law enacted in 2000 are adapted to credit guarantee, but the inherent deficiencies of the guarantee law can not offer good legal criterions for the SEMs credit guarantee. The Promotion Law of China’s Small and Medium Sized Enterprises enacted at Jan 1 2003 is the first special law about SMEs, and it is the law with the highest power layer which can be followed to establish the credit guarantee system for SMEs at present. Comparing with guarantee law, it has large advancement, but it still lacks in the maneuverability, and the policies and regulations matching with it still don’t come into being. Because the credit guarantee institutions of SMEs exist by the form of the legal person, so the modified “the Company Law?is applied, but the guarantee institutes also possess characteristics which are different to general companies, so the company law can not be completely applied. Though the new “Property Law?perfects the shortages in the guarantee law, but it still can not completely regulate the behaviors of credit guarantee. Since 1999, relative departments successively enacted some administrative rules, local rules and policy documents aiming at credit guarantee and promoting the development of the guarantee industry. The existing credit guarantee legal rules of China lacking in professional, systematic, perfect and healthy SMEs credit guarantee legal system are too dispersive and disorder, and it doesn’t still form the system, and the legislation layer is low, which make Chinese credit guarantee system lack in powerful legal guarantees.

 

2. Problems existing in Chinese SMEs credit guarantee legal system

 

2.1 Problems of capital financing

 

In the “Instructional Advices? the guarantee capitals and operation charges of SMEs credit guarantee mainly depend on governmental capitals, and the guarantee charge incomes are only supplements. At present, the capital financing system in China adopts the multiple-mode which takes the governmental capitals as the main body and adopts the common financing mode including financial institutions and other castes and civilian multiple financing modes. The governmental guarantee is in the absolutely main status in the whole guarantee system. For the guarantee institution quantity and the guarantee loan sum, the governmental guarantee share is too much higher, and the civilian capital guarantee proportion is seriously deficient. Thus capital financing structure will produce two sorts of conflict. First, as the macro control and market manager, the government needs to utilize its main financial power to supervise and control the market, and it has no enough financial power to support the credit guarantee system of SMEs, and on the contrary, many civilian capitals lack in proper investment direction. Second, the quantity of SMEs is increasing continually and the scale is continually expanding, but the guarantee capitals of the government are limited, and the SMEs credit guarantee which gives priority to the governmental investment has not fulfill the actual demand of the SMEs financing guarantee.

 

Therefore, the existing SMEs credit guarantee system can not make the government investments exert their efficiencies and the civilian investment can not become into the effective supply, which induces the serious unbalance of the demand and the supply in the SMEs financing and guarantee market and the low total efficiency. The financing difficulty in the SMEs development is mainly induced by the insufficient civilian capital guarantees.

 

2.2 Problems of risk prevention

 

At present, China mainly adopts following measures to prevent the risks of SMEs credit guarantee, i.e. the credit guarantee limitation management mechanism, the proportional guarantee implementing in guarantee institutions, the counter-guarantee and there-guarantee system. But some problems exist in these systems.

 

First, one of tenets of the credit guarantee institution is to disperse the risk of SMEs loans, and it doesn’t assume all loan risks. The credit guarantee institution, bank and SMEs should assume the risks together, and the single institution should not assume all risks. Or else, the “moral risk?of the bank will occur. Therefore, the credit guarantee institutions should guarantee the risk according to certain proportion of the loan. But in the practice, the bank occupies the predominant status in the credit guarantee, and according to the guarantee contract offered by the bank, all guarantee institutions will implement sum guarantees. In this way, under the situation without risk and responsibility, the bank will obtain the loan interests, but the credit institutions will assume large guarantee risks only depending on slender guarantee charges. The risk asymmetry will increase the risk of the guarantee institutions, and seriously restrict the developments of the guarantee institutions and the guarantee industry.

 

Second, the article four in the guarantee law definitely regulates that “when the third person offers guarantee to the creditor for the debtor, he can require the counter-guarantee? and the “Instructional Advices?also regulates that the enterprise accepting the guarantee service should offer securities with same amount to the guarantee institutions, which are legal proofs for the guarantee institutions to require counter-guarantee for the guaranteed enterprises. But it is not feasible to offer counter-guarantees for all SMEs accepting guarantee services, because the properties of SMEs which can be bonded are not too much, and the matching counter-guarantee condition may refuse some enterprises with good foregrounds and breach the original idea of the SMEs credit guarantee system, and the third person can not be found to offer guarantees, so the essential problem of the difficult financing will occur again, and the SMEs guarantee institutions become into the “scapegoat?of the loaner, and the function of developing the financing can not be really exerted.

 

Third, at present, China only regulated the re-guarantee system principally in relative policies, and the re-guarantee system is not definitely regulated on the legislation layer. In the practice, one national re-guarantee institution is absent, which not only seriously limit the guarantee ability of single guarantee institution, but induce the unequal cooperation relationship between the guarantee institution and the bank, so in the guarantee practices, many guarantee institutions can not only assume sum guarantee, but also assume 100% suretyship of joint and several liability. That is relative with the deficiency of the credit ability of the guarantee institutions. Therefore, it is very important to establish the national guarantee institutions and comprehensive and effective re-guarantee system.

 

Source: http://ccsenet.org/journal/index.php/jpl/article/viewFile/388/348  

 

 

 

 

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