China’s First-Credit Rating System Will Make E-commerce Transactions Safer

A local government agency in China has teamed up with a company to launch the first-ever credit rating system in the People’s Republic that is aimed at fighting the rampant online fraud.

The system, called Xinyongbao, will regulate the online marketing of small and medium-sized businesses, according to the Zhejiang Administration for Industry and Commerce, the local government agency that developed it. The Zhejiang province has been at the forefront of China’s e-commerce expansion and is home to a couple of the most popular Chinese websites, such as Alibaba and Netsun.

The credit-rating system, which is based on the Certificate of Authority digital certificate process, will be able to monitor website qualifications, payment system details and product information. The Xinyongbao icons, which will be issued to websites to verify certification, contain hard-to-counterfeit Internet business licenses. As part of the system, clients, consumers and general cybercitizens also will be able to report fraudulent or other suspicious acts to the local industry and commerce administrators. The new credit rating initiative is aimed at further driving China’s booming e-commerce market.

China posted the second-fastest growth rate for e-commerce transactions from 2005 to 2010 of all countries worldwide, according to the latest figures from Euromonitor International. E-commerce in China grew at a CAGR of 76.3% to $US 11,498.7. However, the abundance of fraudulent websites in China is one of the reasons that force most consumers to shop from only a handful number of well-known e-commerce websites.

Internet fraud, phishing and internet pyramid schemes have been an issue affecting online consumers as this channel expands. The China Internet Network Information Centre reported receiving 23,455 phishing reports in 2010. In addition, the China Internet Illegal Information Reporting Centre handled 400,000 complaints in 2010, out of which 23.8% were related to online fraud.

A third-party credit certification system is imperative for China’s rapidly developing e-commerce market to continue its expansion. A trusted Internet system is necessary in order to promote continued Internet expansion and subsequent economic development and social progress in the world’s most populous country. If consumers don’t trust the channel, they won’t use it. In addition, these measures may spur a lift in plastic spending as consumers feel more secure conducting transactions online.