The China social credit system is a broad regulatory framework intended to report on the ‘trustworthiness’ of individuals, corporations, and governmental entities across China. In this introduction, we explain what the China social credit system is, how it differs from financial credit ratings elsewhere, and how it impacts on individuals and companies operating within China.
Nh Global Partner –
Key Takeaways
1. The goal of the China social credit system is to provide a holistic assessment of an individual’s, or a company’s, trustworthiness.
2. The China social credit system, while still in development, is arguably an extension of existing social rankings and ratings in China which have existed for millennia.
3. The consequences of a poor social credit score could be serious. It may affect travel prospects, employment, access to finance, and the ability to enter into contracts. On the other hand, a positive credit score could make a range of business transactions much easier.
4. It is essential that any foreign business consolidating or establishing their presence in China seek professional advice for managing a social credit score. This applies both to individual scores, and the corporate social credit score.
2022 marks a new phase in the development and implementation of China’s social credit system (sometimes known as ‘SoCS’, or the ‘SCS’). Up until now, development has been guided by a national policy document known as the ‘Planning Outline for the Construction of a Social Credit System (2014-2020)’.
This has seen the deployment of the social credit system widely throughout China, with an estimated 80 percent of provinces, regions and cities having introduced some version of the system, or being about to do so.
The implementation of the system for corporations, known as the ‘corporate social credit rating’ is especially advanced: More than 33 million businesses in China have already been given a score under some version of the corporate social credit system.
As of June 2022, it is China’s latest five-year plan for the ‘rule of law’ within China, recent guidance from the State Council, and a draft Social Credit Law, which demonstrate the direction of the social credit system.
So, what is the China social credit system? If commentary in the western media is anything to go by, it is a somewhat mysterious and scary rating system.
In 2018, former US Vice-President, Mike Pence, sounded the alarm bells about China’s social credit system, stating “China’s rulers aim to implement an Orwellian system premised on controlling virtually every facet of human life – the so-called “social credit score.”
Western media outlets have spoken of the “sinister social credit system” and a system of “total control“.
Is there any truth to such rhetoric, and what does all this mean for businesses expanding into China?
In this article, we break down the China social credit system, as it has been developed to date, and aim to separate the myth from reality.
What is China’s Social Credit System?
The term ‘social credit’ (社会信用体 in Chinese and shèhuì xìnyòng tǐxì in pinyin) doesn’t have a precise meaning — rather, it is an intentionally broad and vague term allowing for maximal policy flexibility.
Plugged into a regulatory framework, the ‘China social credit system’ (also knows as ‘China’s Ranking System’) refers to a diverse network of initiatives aimed at enhancing the amount of ‘trust’ within Chinese society.
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