China’s social credit system: A scoring system with far-reaching effects

Since 2014, pre­par­a­tions have been ongoing in China for a national social credit system that will be com­puls­ory for all citizens and busi­nesses. The na­tion­wide roll-out, ori­gin­ally planned for 2020, will very likely be delayed. However, many local Chinese companies and foreign companies re­gistered in China are already under close sur­veil­lance and tracked in ratings lists and databases. For this reason, companies that trade in China or that are planning to move to the Chinese market must make sure they un­der­stand the effects of China’s social scoring system well in advance.

The national social credit system under con­struc­tion should help meet several goals. The Chinese regime wants to track the behaviour of citizens, companies, au­thor­it­ies, and or­gan­isa­tions from a political, moral, and social point of view. According to its own com­mu­nic­a­tions, the Chinese state is par­tic­u­larly focused on the edu­ca­tion­al aspect of the social credit system. Ideally, it should set up pre­vent­ive self-control measures that can nip neg­at­ively evaluated behaviour in the bud.

Citizens should behave for the common good and set good examples for society by vo­lun­teer­ing to perform tasks that benefit the community. The system should also lead to more honesty and trust in the community if citizens and companies are guided by a com­puls­ory and universal scoring system. From an economic stand­point, the Chinese gov­ern­ment will rely on the driving and piloting effects of the rating system. If possible, the State will track almost all economic and business activ­it­ies through com­pre­hens­ive market reg­u­la­tion based in IT and big data (Corporate SCS).

Further goals include avoiding food scandals, fighting pervasive cor­rup­tion, and in­creas­ing security, as citizens will be en­cour­aged to follow the rules and laws. The State would like to improve the Chinese people's man­age­ment of debt and finances, and to establish a credit score for the millions of citizens without a bank account. Gov­ern­ment services should also be optimised through the data-based system. Even en­vir­on­ment­al pro­tec­tion should benefit from increased control and sur­veil­lance. The gov­ern­ment also hopes that computer analyses of enormous databases will allow pre­dic­tions of future social behaviour.

The national social credit system under con­struc­tion should help meet several goals. The Chinese regime wants to track the behavior of citizens, companies, au­thor­it­ies, and or­gan­iz­a­tions from a political, moral, and social point of view. According to its own com­mu­nic­a­tions, the Chinese state is par­tic­u­larly focused on the edu­ca­tion­al aspect of the social credit system. Ideally, it should set up pre­vent­ive self-control measures that can nip neg­at­ively evaluated behavior in the bud.

Citizens should behave for the common good and set good examples for society by vo­lun­teer­ing to perform tasks that benefit the community. The system should also lead to more honesty and trust in the community if citizens and companies are guided by a com­puls­ory and universal scoring system. From an economic stand­point, the Chinese gov­ern­ment will rely on the driving and piloting effects of the rating system. If possible, the State will track almost all economic and business activ­it­ies through com­pre­hens­ive market reg­u­la­tion based in IT and big data (Corporate SCS).

Further goals include avoiding food scandals, fighting pervasive cor­rup­tion, and in­creas­ing security, as citizens will be en­cour­aged to follow the rules and laws. The State would like to improve the Chinese people's man­age­ment of debt and finances, and to establish a credit score for the millions of citizens without a bank account. Gov­ern­ment services should also be optimized through the data-based system. Even en­vir­on­ment­al pro­tec­tion should benefit from increased control and sur­veil­lance. The gov­ern­ment also hopes that computer analyses of enormous databases will allow pre­dic­tions of future social behavior.

As the national system is still under con­struc­tion and there is no con­sist­ent ex­plan­a­tion from the Chinese gov­ern­ment, there are currently many different views of how the social credit system will work and exactly what it will involve.

We can assume that it will build upon already existing and wide­spread listing systems. These listings are based on a ‘rap sheet’, a type of behaviour cer­ti­fic­ate. State au­thor­it­ies will blacklist in­di­vidu­als and companies that have broken existing laws, rules, and local reg­u­la­tions. Con­versely, people and busi­nesses who behave par­tic­u­larly well within the system will be put on red lists. Databases with these lists are already publicly available in China today.

For an insight into the current black­lists and social scoring system, consult the National Credit In­form­a­tion Sharing Platform and the National En­ter­prise Credit In­form­a­tion Publicity System. On this second site, you can look up your own company’s rating by searching for the company’s name or Unified Social Credit Iden­ti­fi­er (an 18-digit number) (the site is available in Chinese only). To find out how to look for your company and more, you can browse the Practical Guide to China’s Corporate Social credit system, provided by the German Außen­han­del­skam­mer (chamber of foreign trade).

Many media reports assume that these listing practices are closely related to a points system. Points-based scoring systems are already being tested in various projects. For example, since 2015, there has been the Sesame Credit System from Ant Financial, an affiliate of the Alibaba group. Chinese citizens can par­ti­cip­ate in this system on a voluntary basis. Its first purpose is to assess cred­it­wor­thi­ness and calculate a personal credit score based on a points system.

When col­lect­ing data, which is also linked to the B2B platform Alibaba.com and the company’s own online auction house Taobao, in­form­a­tion about place of residence and work, family status, payment behaviour with bills and credit card use is also saved. Political ex­pres­sion and pur­chas­ing habits on social media are also recorded.

While the Alibaba group is often compared with Amazon, the Chinese equi­val­ent to Facebook is called Tencent. This company set up its own credit system called Tencent Credit years ago, which is the same as Alibaba’s Sesame credit system. It populates its databases primarily using WeChat, ori­gin­ally a chatting service (like WhatsApp) that was expanded with further services (e.g., the mobile payment system WeChat Pay, com­par­able to Apple and Google Pay).

A points-based system is also the basis used by the Chinese coastal city of Rongcheng in its social credit system tested since 2014. 670,000 residents already have a social score in their everyday lives, which must be given for loan ap­plic­a­tions or for potential pro­mo­tions at work.

Given this and other pilot projects, many experts assume that planned national social credit system roll-out will also be points-based, although this has not yet been of­fi­cially confirmed by Chinese au­thor­it­ies. The concept would be that all actors begin with an initial score (1000 points). Good behaviour raises the score (up to a maximum of 1300 points). Bad behaviour will lose points (to a minimum of 600 points). Exemplary actors can hope to be rewarded. People who don’t behave as the State would want them to can, in the worst cases, be black­lis­ted and recorded on the official 'heavily dis­trus­ted entities list'.

The social credit systems in place in China so far are based on pre­defined eval­u­ation criteria that will very likely also play a role in the national system.

Important eval­u­ation factors for in­di­vidu­als are currently credit scores and pur­chas­ing habits (online and offline). Activ­it­ies and rule-breaking, both on social media and in everyday and social life, will be reflected in a person’s score. People who protect public property, campaign for family values or look after their parents or sick family members can expect positive effects on their score. Criminal records and behaviour in public transport (e.g., riding without a ticket, smoking in trains, etc.) are also con­sidered in China’s social scoring. In addition, eating habits and eval­u­ations from superiors and landlords will impact the rating.

Special eval­u­ation criteria for busi­nesses include product quality, en­vir­on­ment­al pro­tec­tion (following/breaking rules on emissions), pricing, licensing, and use of data and data transfers. The level of tax paid and adherence to payment deadlines are also included in the eval­u­ations. Company reviews by social media users are also con­sidered. Even the behaviour of employees can affect the rating of the whole company. If there are several branches of a company in China, the eval­u­ation of one of its locations can influence the rest of the company.

However, it remains unclear how these eval­u­ation criteria will be weighted in a national scoring system and whether every in­frac­tion will auto­mat­ic­ally have a negative impact. According to experts on China, such as Jeremy Daum, it is more likely that a serious, relevant, and criminal incident must occur first (fraud, theft, tax evasion), and only then will the negative profile be expanded with worse behaviour.

It also remains unclear for now as to when ratings and black­lists would be updated under the national system. Currently, a blacklist entry for a serious mis­de­mean­our may be kept on record for longer than 5 years, or it could be deleted after 6 months at the earliest. The process can be ac­cel­er­ated if a solution to the un­der­ly­ing problem is quickly sought. Busi­nesses can counter a poor ranking by signing a Credit Rescue Com­mit­ment Letter and providing suitable evidence in their defence, which could allow the negative eval­u­ation to be cancelled. Fur­ther­more, legal and ad­min­is­trat­ive aid is available.

According to media reports, the tech­no­logy behind China’s social credit system will involve database networks, digital image, and sound re­cord­ings, big data and data mining analyses, and ar­ti­fi­cial in­tel­li­gence. The technical analyses will be able to pull data from pre-existing projects and systems, as well as new databases, such as the national digital/elec­tron­ic sur­veil­lance system, Skynet, which should also be able to provide further data. It currently consists of almost 600 million sur­veil­lance cameras that, among other abilities, work with facial re­cog­ni­tion and, as of recently, partial gait re­cog­ni­tion.

The con­sequences of China’s social scoring system are largely un­fore­see­able at present, as the national roll-out is only just beginning and many details are not yet known. The often-quoted ad­vant­ages that exemplary behaviour patterns would bring include:

• Pref­er­en­tial treatment for school ad­mis­sions
• Ad­vant­ages when al­loc­at­ing work positions
• Easier access to credit (including for companies)
• Pref­er­en­tial treatment for public contracts (for certain companies)
• Better health care (e.g., shorter wait times in hospitals, free access to gyms)
• Discounts for public transport or when renting cars or bikes
• Quicker pro­mo­tions
• Shorter wait times for living spaces in social housing
• Tax ad­vant­ages or re­duc­tions (including for companies)

Citizens and companies that behave ap­pro­pri­ately and follow the rules of the regime can therefore get many benefits from the system. Con­versely, people who act against the values and norms of the state social credit system can expect some of the following con­sequences:

• Denial of licenses and approvals (including for companies)
• Denial of stock issuing for companies
• Denial of business activ­it­ies in certain market sectors (e.g., the security market)
• Penalties when issuing man­u­fac­tur­ing, export or import licenses
• No public contracts for companies
• More difficult access to credit (including for companies)
• Higher in­spec­tion rates for goods imports (for companies)
• Fines (for companies)
• More and unplanned site in­spec­tions (for companies)
• Penalties when trav­el­ling (no flight or high-speed train bookings, including for companies)
• More difficult access to welfare
• Only limited use of public services
• No work in public services
• No access to private schools

If citizens or busi­nesses end up on a blacklist due to their 'slip up', they can be singled out and shamed online or on public displays even today. Concrete cases of re­stric­tions have already occurred. In 2018, 15 million bans barred people with a low score from long-distance travel by plane or train.

Criticism of the social credit system is limited within China. The overall feeling is general ac­cept­ance, as many citizens place hope in the roll-out and believe the gov­ern­ment’s promises (more security, less cor­rup­tion, etc.). From a technical point of view, the focus is more on the ad­vant­ages of wide­spread di­git­al­isa­tion, as data pro­tec­tion plays a limited role in China. Of course, the lack of op­pos­i­tion could also be related to the fear of sanctions, as the Chinese gov­ern­ment does not generally tolerate open criticism.

Western critics find that China’s social credit system is a big step towards turning it into a Big Brother state. The gov­ern­ment wants to secure its power and have full control over all aspects of its citizens’ lives. Cent­ral­ised data col­lec­tion has been done by the State for several years and is cri­ti­cized as being too far-reaching and in-depth. In addition, political actors in China can have access to very cent­ral­ised data with no re­stric­tions. In terms of mass sur­veil­lance, the Chinese are also evaluated and monitored digitally, which allows extensive linking of data. The credit system adds to pre-existing sur­veil­lance and censuring mech­an­isms as China, just like North Korea, also controls the internet and internet access. Critics con­sist­ently draw parallels with known examples of dystopia, such as those from George Orwell (1984) or Aldous Huxley (Brave New World).

Critics also worry it could lead to social pariahs, whereby in­di­vidu­al­ist, con­tro­ver­sial, and free-thinking people will be shunned and dis­ad­vant­aged. This can ul­ti­mately lead to second-class citizens and companies that struggle to break free from the downward spiral of black­list­ing and negative scores.

Such a con­trolled and surveyed market has little in common with a free market economy. This kind of strongly regulated en­vir­on­ment can also be bad for in­nov­a­tion. Companies will be required to choose their trade partners very carefully in terms of state rules and norms. A negative eval­u­ation, or worse, black­list­ing, runs the risk of losing business partners or not even being accepted as the business partner of a Chinese company to begin with.

If a company is publicly dragged through the mud, the tarnish on its image will be long-lasting. Scores and black­lists can have a par­tic­u­larly nasty effect if the eval­u­ation or slander is un­jus­ti­fied, such as with de­nun­ci­ation, mutual espionage, or mis­judge­ments. There is also a risk that a centrally con­trolled system with no trans­par­ency could turn into misuse and cor­rup­tion. Whether the promised security is even possible is doubted by some of the Chinese pop­u­la­tion, even within the country.

In the eyes of critics, such an opaque system con­tra­venes European data pro­tec­tion prin­ciples guar­an­teed under the General Data Pro­tec­tion Reg­u­la­tion (GDPR). The same critics find that there is a par­tic­u­lar risk of cross-linking in­form­a­tion and data – if citizens or companies lose points in one sector, this could lead to sanctions in other areas.

However, some voices call for per­spect­ive. Some press articles and China experts suggest that premature criticism simply reflects western fears of a Big Brother state. They emphasise that the system is still in its infancy and that it is not yet clear whether it will be real­ist­ic­ally rolled out na­tion­wide and affect all citizens equally or whether it will even work as an all-en­com­passing system of control. Fur­ther­more, and par­tic­u­larly for busi­nesses (Corporate SCS), it could be more of an incentive system than a control system. As part of their self-reg­u­lat­ing activ­it­ies, busi­nesses can take concrete and self-motivated steps to help get positive social credit.

Jeremy Daum, a China expert and re­search­er at the Paul Tsai China Center of Yale Law School, suggests that the social credit system is a pro­pa­ganda tool more than anything else, one that primarily serves to dis­cip­line citizens via the threat of sanctions and en­cour­ages them to be honest. He also points out that the high-tech sur­veil­lance feared by the West is ex­cess­ively over­es­tim­ated. According to Daum, many sur­veil­lance cameras don’t even work, and 'super al­gorithms' and AI tech­no­logy have been barely or not at all used thus far.

Calming voices suggest that there is a global trend towards data-hungry credit and eval­u­ation systems that goes beyond China’s borders. In Germany, for example, the Schufa system allows credit checks using databases, while in the United States, your credit score – or FICO score, for the Fair Isaac Cor­por­a­tion that developed it – is cal­cu­lated using an un­re­leased formula that gathers and weighs several different aspects of your credit history and behaviour. Unlike China, however, social scoring elsewhere is not held in state hands, but rather private companies such as social media. Whether databases con­tain­ing personal data are better off there is often doubted. Open access to con­fid­en­tial social media data from Facebook during the US elections caused long-term damage to the trust in private data pro­tec­tion practices. Western critics should support a view of data pro­tec­tion that finds that data is safer in the hands of the State than in for-profit companies.

A balanced opinion should also look more closely at the positive effects of the system. Companies could benefit from an optimised fight against cor­rup­tion, efficient market reg­u­la­tion and business partners that have been demon­strated to be clean and that don’t turn to dubious business practices.

It’s hard to come to a definite con­clu­sion about the Chinese national social credit system due to all the unclear details and wildly varying opinions of China experts. However, busi­nesses need to implement strategies as to how they will act in the future in an in­creas­ingly regulated market and how they want to work spe­cific­ally towards getting a positive rating.

Companies also need to promptly look into what to do if they are black­lis­ted and the measures they can take to remove a bad rating. It should also be noted that companies in China are already being ex­tens­ively assessed, and even employees are under close su­per­vi­sion.

Fur­ther­more, internal processes and current, and future business partners could be checked in terms of the con­di­tions of a national social credit system. Flex­ib­il­ity and speed in trading will be required in the future, as permanent and short-term changes in the eval­u­ation system cannot be ruled out. As for the current situation, we should keep a close eye on how the social credit system in China develops.