An Introduction to The China’s Social Credit System

China's Social Credit System

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Key Takeaways

  • The China Social Credit system is a framework for assessing the trustworthiness of individuals and businesses in China. 
  • A key function of the social credit system is various blacklists and redlists that provide rewards for appropriate behaviour and punish non-compliant or illegal activities.
  • While there is currently no unified score for individuals, there are currently various social credit measures in place that vary by location and industry. 

China’s Social Credit System represents a significant undertaking by the Chinese government to assess the trustworthiness and compliance of its citizens and businesses. Designed to govern social behavior through a comprehensive reward and punishment scheme, the system amalgamates various pieces of a person’s financial, social, and legal information into a single numerical score. This score is then used to impose real-world consequences, ranging from priority services and opportunities for those with high scores to travel restrictions and slower internet services for those with lower scores.

In its current form, it includes mechanisms that are deeply integrated into China’s economic framework, specifically targeting corporate regulation and compliance. The system transcends traditional credit scoring, covering aspects of life from professional reliability to social behavior, and has become a tool for encouraging particular behaviors deemed beneficial by the state.

While the Social Credit System is expected to be fully operational nationwide at some point, some misconceptions persist about its scope and implementation. It is not a monolithic, country-wide system but rather a patchwork of regional pilot projects with varying degrees of enforcement. 

Here we set out how the Social Credit System works and dispel some common myths for individuals and businesses operating in China. 

Historical Context and Development

The Social Credit System in China is a complex and multifaceted program that seeks to establish a national framework for evaluating the trustworthiness of individuals and corporations. Its evolution is marked by legislative actions and regulatory bodies that shape its current form.

1. Origins and Goals

The inception of China’s Social Credit System can be traced to various traditional and modern antecedents, including the imperial practices of monitoring officials and the Dang’an personnel dossier system prevalent under Communist rule. Recognizing the need to augment trust in the emergent market economy and improve the conduct of citizens, China sought to officially articulate a system that rates and incentivizes trustworthy behavior. The ultimate goal is to foster high integrity among individuals and institutions and promote a more harmonious society by rewarding trustworthiness and penalizing breaches of trust.

2. National Development and Reform Commission

The National Development and Reform Commission (NDRC) is critical in developing and implementing the Social Credit System. It works in conjunction with other government departments to formulate policies related to economic and social development. The NDRC’s guidance has helped steer the initiative through its formative years, crafting directives that align with China’s strategic goals. The involvement of the Mercator Institute for China Studies indicates international interest and analysis in the progress and implications of this systemic endeavor.

Mechanism and Implementation

China’s Social Credit System is a complex framework employing an intricate scoring system and comprehensive surveillance to guide societal behavior. It’s facilitated through pilot projects across various locales, leveraging big data to monitor and assess the actions of individuals and entities.

1. Scoring System

The Social Credit System employs a scoring mechanism to evaluate the trustworthiness and compliance of citizens and businesses. Points are added or deducted based on a range of behaviors, from financial credibility to social conduct. For instance, the city of Rongcheng operated a version where individuals start with a baseline score, which then fluctuates based on their actions.

2. Pilot Projects

Several pilot projects have been run by local governments to test and refine the system. In Shanghai, for example, in 2017 a credit system known as ‘Honest Shanghai’ allowed residents to check their own public score. These projects vary in scope and implementation, demonstrating the unique approaches within the overarching framework of the national system.

3. Big Data

Big data analytics are integral to the system. They collect vast amounts of data ranging from financial transactions to online behavior, used to calculate scores. Note, powerful personal data protections exist in China through the Personal Information Protection Law to ensure that personal data is not misused. 

4. Local Governments

Local governments have a significant role in customizing the system to fit their regions. Each government tailors the system to local societal norms and values, making the Social Credit System highly adaptive yet mandatory for residents. These localized versions contribute to the overall vision for a cohesive national system.

Impact on Individuals and Businesses

The Social Credit System functions as a national reputation mechanism, affecting the economic and social activities of individuals and businesses through a reward and punishment system. It is designed to promote trustworthiness and honesty among the populace and within the corporate sector, aiming to influence behavior through incentives and the fear of repercussion.

1. Reward and Punishment System

The SCS impacts individuals by assigning scores based on their behavior, reflecting their creditworthiness and trustworthiness. Positive actions can lead to rewards, such as easier access to loans and preferential treatment in hotel bookings. Conversely, negative behaviors can result in punishments like travel restrictions or slower internet speeds.

  • Rewards for Individuals: Easier access to loans, discounts on bills, priority in school admissions
  • Punishments for Individuals: Travel bans, exclusion from certain jobs, public shaming. 

Note, as of 2024, these rewards and punishments have been limited to targeted pilot programs and have not been rolled out nationally. 

2. Blacklists and Incentives

Blacklists are a critical component of the SCS, with individuals and entities that fail to comply with laws and regulations facing repercussions. Being blacklisted can lead to severe restrictions on both personal and business activities, including difficulty in securing investments or participating in government procurement.

  • Blacklists: Restrictions on purchasing luxury goods, exclusion from high-prestige occupations
  • Incentives: Tax breaks, better credit conditions, enhanced business reputation

3. Corporate Social Credit System

Businesses in China are also subject to a Corporate Social Credit System, which evaluates their compliance with regulations and their overall behavior in the marketplace. Corporations that demonstrate high levels of self-discipline and honesty can gain significant advantages, while those that do not can face not just fines but also operational hurdles and damage to reputation.

  • Rewards for Corporations: Favorable government policies, lower tax rates
  • Punishments for Corporations: Increased inspections, higher costs of capital

Future Prospects and Reforms

As China continues to develop its Social Credit System, we can expect that technological innovations, policy overhauls, and international perspectives will critically influence its direction.

As of 2024, most of the local trials of the China Social Credit System have now ended and it appears the rollout of a comprehensive individual ranking system is on hold. Most of the ongoing development of the system seems focused on implementation in the corporate social credit context. 

1. Technological Advancements

Integrating big data and advanced algorithms is set to refine the SCS further, potentially increasing its efficiency and scope. Companies like Ant Financial have already shown how technology can be leveraged to assess creditworthiness. As technology evolves, these systems could become more pervasive, tailoring responses based on a wide array of personal data points.

2. Policy Adjustments

Policy adjustments may occur in response to domestic and global events, such as the Covid-19 pandemic, but also broader legal and governance trends in China. Under President Xi Jinping’s leadership, the implementation of the Social Credit System has been seen as part of a broader push for “comprehensive law-based governance.” The pandemic and its associated pandemic prevention measures have demonstrated the potential for greater government oversight and intervention, which may influence future reforms in the SCS. The focus might shift towards enhancing public trust and addressing concerns related to sanctions and personal freedoms.

3. International Perspective

China’s Social Credit System has attracted significant international attention and scrutiny. Global responses, particularly concerning international business practices and cross-border legal considerations, are likely to influence future reforms. As China continues to progress in technology and the SCS framework, its alignment with international norms and privacy standards will remain an area of interest for both foreign partners and critics.

Ensuring Compliance with the Social Credit System 

While there is no comprehensive Social Credit System in place, any company looking to expand into China should check on what the implications of the Social Credit System may be for their activities in China. 

MSA provide comprehensive China expansion and business services, and can ensure that your expansion coheres with all applicable components of the Social Credit System.