Editor's note: People cannot stand without trust. As early as more than 2,000 years ago, Confucius proposed the concept of credit. However, China's credit system has only been established for more than a decade. Although the basic framework of the social credit system has been initially established, it still faces severe challenges. There is still a serious lack of credit in some places and some fields. Counterfeiting, fraud, contract breach, and commercial fraud are even getting worse, and are gradually spreading and eroding all levels of society. The resulting credit poverty has become a huge obstacle to the growth and maturity of China's market economy. Starting today, this newspaper's in-depth column will use a series of reports to diagnose the current situation and causes of "credit poverty" and explore the feasible path of "credit poverty alleviation". Please pay attention.

"Italian leather goods" produced in Guangdong, "Lafite Empire" brewed at home, "LV" bought on the street stalls, "ancestral film" in the vegetable market... The trend of counterfeiting and fraud in the business field seems to have never stopped, and it is even getting stronger. Various counterfeit and shoddy products, frauds and deceptions are not only widespread in urban and rural areas, but also spread from small food, small building materials and other "five small" to large stores, famous stores and even multinational companies. Some of them even make regulatory departments and front-line law enforcement officers helpless. In a great country, a country of etiquette, why is it so difficult to "trust"?

"Fraud is the king of 36 trades"

In order to make dried peppers bright in color, good in appearance and not moldy, some people use carcinogenic industrial sulfur to fumigate; some people add formaldehyde to pig blood tofu; some people use waste plastics and even medical waste to make straws... "What can I buy, who can I trust?" has become a "high-frequency language" for people everywhere.

During this period of time, more and more consumers have begun to avoid the "shabu-shabu meat" that was once popular everywhere. In August this year, the Shanghai Food and Drug Administration found during an inspection that the Jialinge Restaurant in Hongkou District processed and sold exquisite beef and mutton rolls that had not been inspected and quarantined, and adulterated ingredients were detected in the products. The person responsible, Ye Xiufeng, was banned from the food industry for five years. A month earlier, five stores in Shanghai, including Pinshang Dou Lao Fang in Zhoupu Wanda Plaza, were found to have used adulterated mutton.

Since last year, police in Shanghai, Jiangsu and other places have successively cracked down on major cases of counterfeit beef and mutton, and found that criminals used uninspected and unquarantined animal meat products such as duck, fox, mink, and rodent meat to impersonate mutton for sale. In order to increase the flavor and cooking resistance of the "mixed meat", counterfeiters soaked beef and mutton oil or added gelatin. What's more, some people added harmful substances such as carmine and nitrate salts to dress up the "selling appearance" and then sold counterfeit beef and mutton. In the sales process, stores including large supermarkets such as "CP Lotus" were also involved.

"Fake beef and mutton not only defrauds consumers, but also animal meat products that have not been inspected and quarantined may carry a large number of bacteria and viruses, and may also contain allergens. Putting them on the market as edible meat is harmful to public health." Li Shuguang, a professor at the School of Public Health of Fudan University, said in an interview with the Economic Information Daily.

Even the beef and mutton that people eat on a daily basis is like this, and other commercial scams are even more varied. Xiong Haijun, deputy captain of the Food Safety Police Brigade of the Public Security Detachment of the Changsha Public Security Bureau, introduced that they have seized a major case of making fake wine in recent years involving tens of millions of yuan. It was found that illegal vendors purchased real wine bottles at high prices, bought packaging boxes with realistic anti-counterfeiting logos, used ordinary liquor to blend high-end liquor, and used "Luzhou Laojiao Touqu" and "Erqu" to blend "Guojiao 1573", "Wuliangye" and "Shuijingfang". Counterfeiters colluded with some units with a lot of public funds and high-end hotel purchasing personnel to form a community of selling and buying fakes to make huge profits.

In the counterfeit and shoddy cases seized by police in various places in recent years, some people use industrial salt to make "iodized refined salt", in which the intake of three grams of sodium nitrite can cause death; some people use carcinogenic industrial sulfur to smoke dried peppers in order to make them bright in color, good in appearance, and not moldy; others, such as adding formaldehyde to pig blood tofu, making straws with waste plastics and even medical waste, and soaking dried beef tendons in hydrogen peroxide, are too numerous to mention.

"In the 36 trades, fraud is king!" A law enforcement officer outlined the current business landscape in this way.

In addition, in terms of asset and property rights assessment, standards are set arbitrarily and valuations are arbitrary; in the financial market, malicious credit card overdrafts, forged and altered bank bills fraud, fake online bank transfers, illegal fundraising and other means are constantly being refurbished; in the field of business operations, tax evasion, accounting fraud, fraudulent listing, profit manipulation, malicious overdrafts, etc. are common; in all kinds of business dealings, malicious contract breaches, debt evasion, and fake bankruptcies are everywhere.

During the "3.15" period this year, data released by the State Administration for Industry and Commerce showed that in 2012, China's industrial and commercial system filed and investigated 120,400 cases of infringement and counterfeiting, of which 1,576 major cases of suspected crimes were transferred to judicial organs in accordance with the law, more than quadrupling the number in 2010. "What can I buy? Who can I trust?" has become a "high-frequency phrase" among people everywhere.

Stock market fraud has deceived thousands of investors

In the financial market, there is no pricing without credit. When combing through specific companies, there are many traces of fraud.

While dishonesty and fraud are rampant in the commercial field, listed companies that are directly related to the vital interests of thousands of investors have also been frequently exposed for illegal fraud. Among them, the existence of Wanfu Biosciences is an example of dishonesty in the stock market.

Inflated operating income, costs and profits, less than a year after it was officially listed on the Growth Enterprise Market on September 27, 2011, Wanfu Biosciences was found to have fabricated its performance and was called "the first fraudulent stock on the Growth Enterprise Market." On September 14, 2012, the Hunan Securities Regulatory Bureau opened an investigation against Wanfu Biosciences. On September 18, 2012, the local securities regulatory bureau¡¯s investigation was upgraded to an investigation by the China Securities Regulatory Commission.

On October 26, 2012, Wanfu Biosciences admitted its fraudulent behavior: the company had falsely increased operating income by 188 million yuan, falsely increased operating costs by 146 million yuan, and falsely increased profits by 40.23 million yuan in its 2012 semi-annual report. One wave has not yet subsided, another wave has risen. On March 2, 2013, Wanfu Biosciences issued another announcement admitting that after self-examination, the company had falsely increased revenue by about 740 million yuan, falsely increased operating profit by about 180 million yuan, and falsely increased net profit by about 160 million yuan from 2008 to 2011. Public information disclosed by Wanfu Biosciences shows that the fraud was mainly achieved by falsely increasing the "construction in progress" and "prepayments" items, which is more concealed than falsely increasing income from "accounts receivable".

According to the revised interim report, Wanfu Biosciences' operating income in the first half of 2012 was 82.17 million yuan, a year-on-year decrease of 64.61%; its net profit loss was 13.68 million yuan, a year-on-year decrease of 143.87%. The company achieved operating income of 181 million yuan in the first three quarters, a year-on-year decrease of 54.23%; its net profit loss was 934,100 yuan, a year-on-year decrease of 101.55%.

According to the relevant information disclosed by Wanfu Biosciences, some institutions estimated that due to its listing price of 25 yuan per share, Gong Yongfu and Yang Ronghua, who together held more than 40 million shares of Wanfu Biosciences, were worth as much as 1.005 billion yuan. Before 2008, the registered capital of Wanfu Biosciences' predecessor was 20 million yuan.

Looking back on the progress of the entire case, the final fine imposed on Wanfu Biosciences was only 300,000 yuan. It seems that the "direct delisting of fraudulent IPOs and compensation for investors' losses" was not fully realized in the end. This cost of dishonesty has indeed become an indulgence for fraudsters.

Wanfu Biosciences¡¯ fraud is not an isolated case. In early November, the China Securities Regulatory Commission reported that four listed companies, including Beidahuang, ST Biochemical, Lingqi Shares, and Kangzhi Pharmaceutical, had illegal and irregular information disclosure.

Financial commentator Ye Tan wrote on his blog that in the financial market, there is no pricing without credit. When combing through specific companies, there are many traces of fraud. It is difficult to count how much of the total number of listed companies there are. The "bad guys" can only be an immeasurable handful.

From the lack of credit loans, we can infer that China's bank loan field does not believe in the word "credit". From the ratio of delisting and fraud in foreign backdoor listings, as well as specific examples of fraud in China, we can infer the fraud situation in the Chinese stock market. Ye Tan said that more than 60 Chinese concept stocks have been suspended and delisted due to financial fraud, and Chinese concept stocks have lost their credit. In the future, the cost of listing will rise and the credit will be discounted.

Dishonesty in economic and trade hurts others and not benefits oneself

The lack of commercial credit has not only damaged China's investment and business environment, restricted the development of China's consumer economy, but also had a negative impact on the country's image.

Lu Dong, deputy general manager of the Shanghai branch of China Export & Credit Insurance Corporation, provided a set of data showing that the bad debt rate of Chinese enterprises is as high as 1% to 2% per year, far higher than the level of 0.25% to 0.5% in mature markets; China signs 4 billion contracts each year, of which the fulfillment rate is only 50%; the direct and indirect economic losses of Chinese enterprises due to lack of credit are as high as 600 billion yuan each year, of which various losses caused by poor product quality, counterfeiting and selling counterfeit goods, and contract fraud amount to 200 billion yuan.

In recent years, the phenomenon of lack of integrity in China's economic and trade fields has been very obvious, and has even expanded to the field of international trade. The behavior of losing trust with the people, foreign governments and investors directly undermines China's investment and business environment and affects the country's image.

"There was a survey that Europeans and Americans prefer to do business with Indians rather than Chinese." Cheng Youhua, deputy director of the Jiangsu Provincial Social Credit System Construction Leading Group Office, told the Economic Information Daily reporter that the main reason is that Indians have a higher degree of integrity.

According to Professor Hu Zhengrong, vice president and doctoral supervisor of Communication University of China, he found in Kenya in 2012 that many local people still have the deepest impression of China: Bruce Lee, Jackie Chan and "cheap things", and many African countries have the impression that Chinese products are "cheap but of poor quality". This phenomenon of distrust of Chinese businessmen frequently occurs in international trade.

The damage to China's international image and international trade caused by the lack of integrity is obvious, and a perfect credit system will bring great economic benefits. Hong Mei, a professor of credit management at Shanghai Lixin University of Accounting, showed a model to reporters: In the first two years of the construction and legislation of the credit system in the United States, there was no significant stimulus to the economy; after the legislation was perfected, excluding other factors, credit promoted the US economy to grow exponentially.

Lu Dong also introduced that more than 90% of market transactions in Western countries such as the United States are credit transactions. In the consumer economy that accounts for more than 80% of GDP, more than 2/3 are realized through credit consumption, while inter-enterprise credit transactions account for only 20% of all transactions in China. "If there is a sound credit system, it means that China's economy, especially the consumer sector, will have huge room for growth."

The backwardness of credit transactions makes China often play the role of "victim" in international trade. Yu Ping, vice president of the China Council for the Promotion of International Trade, once estimated that with the continuous increase in export trade volume, more and more overseas accounts owed to Chinese companies, and Chinese companies are owed about 150 billion US dollars overseas. However, China's professional ability in commercial debt collection and credit risk management is not strong, which leads to Chinese companies often suffering "dumb losses".

Is it inevitable that there is no cure in the primary stage?

Some law enforcement officers are influenced by the "no cure theory" and "inevitability theory" and are passive and inactive, and even act as a "protective umbrella" for commercial fraud, which greatly reduces the effectiveness of public management in maintaining commercial integrity.

During the interview, many experts and the public hoped to rely on supervision to improve the level of integrity in the business sector. Some people even suggested that the government should "clean up all counterfeit and shoddy products overnight, just like the New China dealt with opium dens and casinos back then".

However, in sharp contrast to social expectations, some regulatory departments and law enforcement officers feel powerless and confused. The director of a city's industrial and commercial bureau told the Economic Information Daily reporter, "We only have a few people, and we have to manage tens of thousands of businesses. It takes several months to go through a round of inspections. What problems can we find?"

Some law enforcement officers admitted that China has made great efforts to strengthen the management of commercial integrity in recent years, but commercial fraud is still very strong. At present, various commercial dishonesty behaviors have spread from cities to rural areas. Counterfeit and shoddy foods, knockoff electrical appliances, etc. have gradually made many poor and remote areas, which used to be simple and honest and valued keeping promises, gradually deteriorate; traditional market problems have not been cleared up, and Internet and telecommunications fraud are becoming increasingly active. The difficulty of managing and investigating the "five small" workshops, such as small food, small building materials, small plastics, small washing, and small processing, which are gathered in the urban-rural junction, is increasing. On the other hand, problems of large enterprises, time-honored brands and even foreign-funded enterprises have begun to emerge again. For example, Wal-Mart, Carrefour, GlaxoSmithKline, KFC and other "Fortune 500" companies that are "honest" overseas have also frequently engaged in commercial fraud in recent years.

It is understood that in the early days of industrialization in Western countries, counterfeiting and other commercial integrity problems emerged in an endless stream. From the mid-to-late 19th century to the 1930s, Greece and Italy counterfeited French luxury brands and even ordinary red wine; in the US market, buffalo milk, charcoal coffee, gelatin mixed with grass seeds to make jam, formaldehyde milk, borax butter, sulfated meat, etc., frequently caused consumer panic. From the 1970s to the 1990s, South Korea, Taiwan, China, Thailand and other countries during the economic takeoff period also became "production and sales paradise" for counterfeit tapes, sunglasses, brand-name clothing, luggage, sports shoes and other goods.

Against this background, some heads of regulatory agencies and law enforcement officers agree with the view that the current commodity economy is in its early stages of development, and the rampant commercial dishonesty is an inevitable historical stage. When the economy and society develop to the "next generation", everything will be solved.

Experts believe that under the influence of the "no cure theory" and the "inevitability theory", the current institutional designs for commercial integrity by some regulatory departments and local governments often carry departmental or local interests; while at the law enforcement level, some people are passive and even act as "protective umbrellas" for commercial fraud. In this way, the effectiveness of public management in maintaining commercial integrity is greatly reduced.

Except for the signed articles, all articles in this edition were written by reporters Su Xiaozhou, Deng Zhonghao, Zhou Lin, Liu Weiwei, and Wang Zhi

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