China extends its social credit system to businesses

A factory in Zhuhai, China. (Wikimedia)

The Chinese government has begun to expand its burgeoning social credit system to rate individual businesses. The government said that it will rate any firm operating in the country, including those based in America and Europe.

The credit system compiles records like payroll data, environmental records and employee political affiliations, many of which are stored across government agencies and industry groups. The system will then apply a rating between 1 and 4, with 1 being the best. The country's economic planning agency announced in September that it has already rated 33 million firms.

In a September 22 article, the New York Times reported that the Chinese government has used the rating system as a political tool:

United, Delta and American received letters last year from Chinese aviation officials saying their social credit score could be hit unless their websites labeled Macau, Hong Kong and Taiwan as part of China. Lower scores would lead to investigations, the possibility of frozen bank accounts, limitations on local employees’ movement and other punishments, according to a letter sent to United and seen by The New York Times.

The increased industry scrutiny, however, could help make China a fairer place for foreign businesses, according to the European Chamber of Commerce:

In some respects, this is good news. Equal enforcement of regulations should become a reality as numbers are crunched by impartial algorithms, before the system then pumps out a rating for each individual firm.

In the same report, the ECC described the corporate social credit system as a modern replacement to joint venture programs, which required foreign companies to enter into joint ventures with Chinese firms in order to operate in the country.

"The [corporate social credit score] is emerging in the background to enhance the government’s ability to steer companies' behaviour," the report writes.


China's social credit system

October 2nd

China's social credit system has been described as a nationwide, all-encompassing personal rating mechanism, used to punish and reward citizens based on their financial history, personal contacts and even the amount of time they play video games.

In reality, the social credit system does not produce a single, nationwide credit rating for Chinese citizens. At least not yet. In fact, many people may not have a social credit score, or even know if they do.

Announced in 2014, the social credit system has been tested across a patchwork of social and consumer apps and local government pilot programs (like those already running in Shandong and Xinjiang).

The nearest thing to a nationwide score for Chinese citizens is likely the Supreme People's Court's debtors list, which contains the names of 14.5 million people with longterm debt.

The official social credit system is slated to roll out in 2020. Shortly after announcing the system, the People's Bank of China granted approval to eight private firms ($) to run their own pilot programs. Since then, local government-led ratings systems have also sprouted up across the country as well.

Five years on, the future of the system is somewhat uncertain. When it is fully rolled out, it may ultimately gather data from disparate sources that already exist-- like the debtor's list, local government data, and individual browsing histories and social media activity to compile metrics wherever available.

“The social credit system is just really adding technology and adding a formality to the way the party already operates,” Samantha Hoffman, a consultant at the International Institute for Strategic Studies, told Foreign Policy.