Economy

Trust deficit

China’s social credit system adds 33 million firms

George-Orwell-w

What would Orwell make of it?

In 2014 China’s State Council set itself a target to promote ‘social credit’ rating systems across the nation. Different local governments and central authorities were encouraged to set up their own systems – in the hope one day they’d interlock together nationally.

Last month one of the larger scale initiatives – run by the National Development and Reform Commission (NDRC) – announced that its first batch of 33 million businesses had been rated by the new National Public Credit Information Centre. These firms now have a chance to review their ratings – which range from excellent to poor – before they are made public, the NDRC says.

Eventually all companies in China, including foreign ones, will get a social credit score. The corporate ratings are created by blending a range of official information from different government agencies. In the case of a coal mining firm, for example, the credit centre would look at things like the mine’s tax returns, its environmental scores and its safety record.

In theory, the system simply links up data from multiple sources to build up a picture of a company’s trustworthiness. Of course, the crucial question is what is going to be included – or omitted – in the rating process. If a company fails a safety inspection will its social credit rating go down automatically or does it get a chance to rectify the situation? Does a legal dispute with another firm or a row with a regulator bring down a rating immediately or does the system wait till a court or review process has reached a final decision?

In short, the concern is whether social credit ratings might circumvent due process. This is something that the NDRC itself is concerned about too. Speaking at a press conference in August its spokesperson Meng Wei emphasised that there needs to be clear rules about what can and cannot be considered in changing a rating.

As yet, there is no national system for rating individuals – although pilot schemes are in place in some cities. Meng also warned against individual social credit schemes including ‘subjectively’ determined ‘anti-social behaviour’ such as frequently changing jobs or failing to visit elderly parents.

“The NDRC has noted that some local laws and regulations have incorporated behaviours that are not related to dishonesty and personal credit records. The NDRC has corrected any such problems,” she said.

The only countrywide system monitoring individuals in a similar way at the moment is the travel blacklist, which stops people from buying high-speed train and plane tickets if they have been deemed by a court to have defaulted on loan repayments or fines.

To date there has been very little consideration given by the authorities to how good behaviour in one area might offset less impressive conduct in another.

For example, giving blood to get additional points in your personal social credit schemes will not get you off theplane and train blacklist. Only repaying loans or settling fines will do that.

The logistical complexities in implementing the new ratings system may also make it less of the Orwellian overstretch that its critics fear. As Jeremy Daum of China Law Translate highlights, the social credit system is primarily a way of applying existing regulations. It does not require companies or individuals to behave differently – as long as they are already law-abiding.

A recent report from the European Union Chamber of Commerce in China even suggested the system could be of benefit to foreign companies operating in China by helping to create a “more level playing field”. But it also warned that the system was opaque and that non-verified information such as media reports might be used to determine ratings. It highlighted too that the system would consider the reputations of local business partners. “Partner ratings also impact a company’s credit score, demanding that its network of suppliers and logistics partners be carefully scrutinised to maintain its own score. Furthermore, production interruptions and delays when locally-based partners get sanctioned due to negative ratings could present a threat,” the EU Chamber noted.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.