The Puzzledom Faced By Surety Company In China And Legal Solutions

Surety companies are companies for which suretyship makes up all or most of their business. The history of surety companies in China can be traced back to 1990's when the state started to build up a national surety mechanism for small and medium business. The first national surety company was China National Investment & Guaranty Co. Ltd., created by the former State Economic and Trade Commission and the Ministry of Finance. Not until the year 2000, surety companies experienced rapid growth in China.However, the rapid growth didn't last long. A sharp decline quickly followed up, attributing to both external and internal problems of surety companies. Behind the rapid growth, the surety industry lacked of national credit system support. Meanwhile, the government didn't function well due to unclear self-position as market regulator, not to mention the legislation efforts for the surety industry. On the other hand, surety companies didn't get well prepared for the rapid growth in terms of competency for both business operation and management. All the problems prevented surety companies from further growth and therefore deeply threatened their continuous development.Based on the analysis of factors leading to the current puzzledom faced by surety companies,this paper is trying to advise on general industry principles, surety companies service terms and government administration to find a way for surety companies out of the puzzledom from both their business environment and internal problems.This paper has four sections:Section one is an introduction about the history of surety companies at home and abroad. It serves as an analysis on the history from economic perspective, helping us understand surety companies'primary function: reducing information asymmetry in companies'financing activities and optimizing funds allocation.Section two analyzes on the current situation of surety companies as well as their difficulties, pointing out both external and internal problems leading to their current puzzledom. The external factors include ineffective credit system support, inefficient transition of government administration, lagging in legislation, etc. Internal factors consist of unclear self-position of surety companies, ineffective corporate governance system, information asymmetry between financial institutions and surety companies, ect.Section three finds out three factors critical to help surety companies out of the current puzzledom. They are: the government to focus on cultivating the self-adjusting system of surety industry and to adopt new industry policies such as tax incentives; to legislate a systematic legal framework and relative laws and regulations; to improve the supervising system of surety industry.Section four advises on detail measures to help surety companies, focusing on the above three critical factors. These measures include market entry qualification, surety industry principles, surety company service terms, industry self-discipline, government supervising, etc.