Small enterprises cash in on credibility

For He Ping, owner of a plumbing factory in east China's Zhejiang Province who has been doing business for 16 years, the key to his success is credibility.

At the end of 2012, He lost nearly 2 million yuan (322,666 U.S. dollars) after a fire engulfed his factory, which had an annual sales volume of only about 10 million yuan. As well as the loss, He had to spend cash on renting a new plant, moving equipment and purchasing materials.

The day the fire occurred was his repayment date for loans that had been taken out with Alibaba Finance, a financial affiliate of Alibaba Group. It provides unsecured credit to small and micro enterprises and online store owners who struggle to borrow from traditional financial institutions.

Due to the fire He failed to meet his repayment. But the next morning he repaid the credit.

"Some people called me stupid, saying that there was no need to repay the credit as it was without security," He said, "but the lender had faith in my factory when lending me the money. I could not destroy the credibility of my business."

Since then He has met all his repayments. As a result, Alibaba Finance has extended his credit limit by 100,000 yuan, and lowered his interest rate.

Not everyone is like He when it comes to credibility. Scandals relating to food safety, cheating in collage entrance examinations and default risks in the shadow banking system have regularly made the news.

When delivering the government work report on March 5 at the annual parliamentary session, Chinese Premier Li Keqiang proposed to build a social credibility system and "make those who lose credibility pay the price and smooth the way for those who have credibility".

Wang Jiaying owns the largest online packaging store in Zhejiang. He has trust in his customers.

Wang registered a store on Taobao.com, China's most popular online shopping platform under Alibaba Group, in 2008. The store now sells more than 20 million boxes per year.

Most of his customers buy 500 to 10,000 cartons at a time. Buyers should count the number of boxes before they sign for the delivery. After they accept the products, the seller is no longer responsible for the goods.

"However, if customers say they have received fewer boxes than they ordered, we will refund or send them the missing boxes," Wang said.

"We believe the customers unconditionally three times. If customers are really untrustworthy, we will refuse to sell boxes to them," he said. "When you have faith in your customers, they will also have faith in you."

Statistics showed that more than 2.7 million people are doing business on Taobao.com. It has about 500 million registered users.

The website has established a credibility system. It has a third-party online payment platform which ensures the safety of online payments. Customers can post their comments about the quality of goods and services on the website.

When online shop owners apply for credit from Alibaba Finance, consumer comments and their trade history are taken into consideration when the lender decides credit limits.

Ding Yuanzhu, a researcher with Chinese Academy of Governance, said establishing a social credibility system should rely on both rule of law and market forces.

Premier Li Keqiang said China should "implement a blacklisting system for enterprises that violate market competition principles and infringe on the rights and interests of consumers."

Ding said one of the most important foundations of market transactions is credibility. Implementing a blacklisting system would require vigorous regulations on trading activities and the people involved.

Building a complete market system is key to the establishment of a healthy social value system, he said.