The 2006 credit rating campaign targeting China's foreign trade companies formally started on Monday, according to the Ministry of Commerce.

Initiated by the China Shippers Association which is under the ministry's jurisdiction, the event aims to stem business fraud and set up a sound credit system in the foreign trade sector, said the circular.

Due to lack of a credit system, the proportion of bad debts to retrievable debts of some Chinese foreign trade companies is as much as 30 percent, far higher than the average 0.25 to 0.5 percent of their western peers, said Chen Xinnian, director of the Consumption Research Office of the Economy Institute of the National Development and Reform Commission.

Calling credit rating an "urgent task", Chen said that only after a nationwide credit system consistent with international practices was established could domestic companies slash their transaction costs and trade risks.

The circular said that domestic companies engaged in the import and export business should submit their credit records by December 31 to the Beijing International Business and Credit Assessment Company (IBD-Credit) for preliminary evaluation.

The IBD-Credit, with authorization from the ministry, will make quantitative analysis on the financial health of a company including its assets scale and quality, profitability, solvency, cash flow, operation efficiency and growing potential.

An expert panel affiliated to the China Shippers Association will then review the preliminary rating results and base their final judgement on a comprehensive evaluation of the records from departments like the customs, taxation, industry and commerce, quality and quarantine and banks.

Since the first such campaign was started in 2004, nearly 1,000 companies have had their credit status rated. The rating is valid for five years and requires an annual review, said the circular.

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