First conceived as early as 2001 and put into national plans in 2014, China’s social credit system (SCS) has got a lot of attention in English-language press in the last few years. However, Western technophobia coupled with China-anxiety has made much of that coverage incomplete and biased. On the one hand, many have an exaggerated view of China, and its government, as a monolithic entity capable of swift and effective enforcement. On the other, people are still not comfortable with the idea that companies and governments see them as nothing more than a data point—and when that idea gets associated with a one-party state, we immediately get flashbacks to Orwell.
We at TechNode have covered social credit extensively over the last few years and there have been many others who have also tried to bring a dispassionate perspective to the matter. We recently syndicated a great piece from Trivium, a strategy consulting firm based in Beijing, on the apps being used to deploy China’s vision of social credit. I had so many questions that I wanted to ask the author, Matt and I decided to do a podcast episode with her. As preparation for the podcast, we cast a wide net to understand what’s going on. Here’s what we learned.
Bottom line: China’s social credit system is still not well understood, inside and outside the country. Many of the concerns we hear in Western media do more to reveal their own bias while not giving Western readers enough to understand why China might want to embark on it in the first place. Five years after the first national plan was announced and we’re starting to see some of the pieces come together. As always, there are some clear tradeoffs: regulations might actually get enforced consistently, but the cost of compliance is definitely going to rise.
A brief timeline:
- 2001: People’s Daily calls for the creation of corporate and individual dossiers, linking “sincerity” to the development of a healthy market economy
- 2003: Provinces begin experimentation
- 2010: Suining County, Jiangsu pilots a scoring system for citizens
- 2013: Central government issues regulations for the credit industry
- 2014: Central government releases Planning Outline for the Construction of a Social Credit System (2014-2020)
- 2014: People’s Bank of China (PBOC) licenses Sesame Credit and other pilot projects
- 2016: PBOC sets up National Credit Information Publicity System, allowing public lookup of corporate credit ratings
- 2017: National Public Credit Information Center created
- Aug 2019: Cyberspace Administration publishes draft regulation that would use social credit to punish “untrustworthy conduct” by individuals and the platforms they use
- Sep 2019: China’s National Development and Reform Commission releases its preliminary credit assessments of companies in a variety of industries
China’s enforcement problem: “The mountains are high and the emperor is far away” is one of my favorite Chinese idioms. Chinese governments have always had trouble getting provinces to listen, and they’ve often sought to get their attention with extreme, but rarely enforced, rules and punishments. Jeffrey Daum, prolific translator of Chinese regulations and legal documents, hits the nail on the head (emphasis mine):
If you’ve read stories about social credit and it’s menacing slogans about “the untrustworthy not being able to take a step,” it might be hard to believe that the relevant legal authority frames social credit as a means of streamlining regulation to remove burdensome requirements on business and letting market forces guide the way. It might even sound absurd, or like intentional double-speak, arguing that enforcement has to be stricter in order for regulation to be more relaxed.
Those who have lived or worked in China, however, are likely familiar with another, related paradox: that the laws are both draconian and unenforced, or maybe unenforceable.
SCS throughout history: In a May 2018 paper, Roger Creemers, a researcher at Leiden University in the Netherlands, connects China’s social credit ambitions with historical ideas of morality and authority:
The close linkage between morality and authority lies at the heart of China’s political tradition. . . Law thus is a tool to cultivate subjects’ moral sentiments and transform their worldview, in order to achieve social and cosmic harmony. . . The SCS fits squarely in this tradition. From the very beginning, the compliance problem that the SCS is intended to solve has been framed in moralistic terms. . . SCS policy documents claim its objective is to stimulate “sincerity” (chengxin) and “trustworthiness” (yongxin). . . The SCS can also be seen as a response to a moral crisis in politics. It came to prominence during a time where the political initiative had moved from the center to the localities, resulting in perceptions of weak central leadership and rampant local corruption.
Creemers points to an often overlooked and misunderstood aspect of the social credit project: the origins of such a project don’t just come from a central government and ruling party seeking more control. It’s deeply rooted in a philosophical and legal system that makes rulers responsible for the virtue of the ruled.
What social credit wants to be:
- A technological solution to the difficult problems of enforcement in China
- A big data project to encourage a “sincerity” culture for a healthy marketplace
- A way to remove human decision-making (and attendant corruption) from the market
- A system designed to automatically track, rate, reward, and punish the behavior individuals and companies
What social credit isn’t (yet):
- A unified top-down enforcement mechanism that constantly monitors and tracks behaviors of individuals and companies
What social credit is now:
- A fragmented landscape of public-private partnerships
- In the private sector (e.g. Sesame Credit), a siloed (per company/company-controlled ecosystem) solution to the lack of a financial credit rating agency for individuals
- A database controlled by the central government with credit files on individual and companies made available to state agencies and banks
- A tool to regulate corporate behavior through the use of blacklists for punishment and “redlists” for rewards
- A way to punish legal representatives of companies for violating regulations
What social credit means for your business: The corporate-focused European Chamber of Commerce/Sinolytics report on social credit is guardedly optimistic. They expect regulatory compliance to become a much bigger part of business in China—but they think their members have an advantage in compliance.
- Managing ratings will be complicated and expensive: Every locality and line of business a company is involved is likely to expose them to at least one new ratings scheme, and learning the detailed requirements of all these schemes is no simple matter.
- Could level playing field or give advantage to foreign enterprises: Foreign companies tend to be better at compliance than Chinese. The system aims to eliminate human judgment from oversight, should be more evenhanded
- But there’s still ample room for discrimination against foreign enterprises: Special “heavily distrusted company” list can be applied arbitrarily as a stick. Chinese enterprises are likely to have advantage gathering information needed for compliance
Violations to watch out for:
- Not honoring legal obligations
- Failing to pay employees (especially migrant workers)
- Fraudulent financial activity
- Tax evasion
- Import-export offenses
- Violations of cyberspace laws
- Violations of environmental laws / excess energy consumption
- Endangering public health and safety
The death of privacy: Privacy is dying a slow death, and not just in China. Around the world, governments and private companies are collecting more and more behavioral data. In the West, this has been led by the likes of Facebook and Google. In China, the government is actively exploring ways to solve age-old problems with technology. While Big Brother is certainly watching you, his motives aren’t always nefarious and he still doesn’t quite understand what he’s seeing.
Social credit is here. You can go online today and check if a company is being sued or fined. People are already being kicked off high-speed trains for shady business practices. Personal scores, and jaywalking surveillance, are still confined to local experiments, for now. But what’s happened already is well worth understanding.
—John Artman with contributions from David Cohen and help from Squared member, Ed Sander.