China's Social Credit System

-- By EthanChuang - 8 May 2022

Introduction – What is China's social credit system?

In its current iteration, China’s social credit system (SCS) is not a dystopian social rating system, as some Western articles have dubbed it. “Social credit” is a “working term” or an “umbrella category” that covers broad policy agendas. The purpose behind China’s SCS is to address legitimate issues of trust within society. One type of trust issue is financial credit. Unlike companies and individuals in the United States, most people in China do not have FICO scores nor credit histories. As such, Chinese financial institutions do not have a unified metric for determining whether a potential borrower is trustworthy.

Additionally, the SCS has been implemented through experimental projects across multiple cities. While the social credit is a national policy, it is not implemented on a national level. So, in its current form, the SCS is rather benign and disjointed. However, Chinese residents should certainly be wary of what the SCS can become. Recently, the Chinese government has issued policy documents that suggest it will remedy the SCS’s deficiencies and enable the CCP to use it for national security purposes. The discussion below will analyze the SCS in its current form and discuss why latter iterations of the SCS are concerning.

A Fragmented System

As mentioned earlier, “social credit” is a big idea or catchphrase that covers broad policy agendas. The breadth of this policy and lack of clarity has led to a fragmented system.

Too Many Regulators

The SCS is administered through a disjointed legal system. Over 47 institutions, with different interests shape the SCS. These institutions include the National Development and Reform Commission and the People’s Bank of China. Moreover, the SCS seeks to regulate an ambitious range of sectors including finance, environmental protection, and food safety. Additionally, authorities at various regional and local levels write and implement unique regulations for their respective jurisdictions. Consequently, the large number of regulators and regulated parties has resulted in a fragmented system.

Decentralized Pilot Programs

The SCS has been tested through a decentralized pilot program. Between 2018 and 2019, 28 model cities were selected to experiment with the SCS. While the national government provided central guidance, local authorities were given significant leeway. For example, different cities used the SCS to address different policy issues. Research shows that Shanghai primarily focused on food and drug safety while Ningbo focused on energy, industry, and construction issues. Moreover, local authorities were permitted to add their unique supplemental regulations, such as standards for blacklisting. Additionally, different cities used different evaluation systems, such as varying point scales and differing degrees of punishments. Because the SCS has been developed in different cities, it is difficult to label China’s SCS as a unified national program.

Concerns

Despite the system’s incoherence, the SCS may still be used as a means of social control. On March 29, 2022, the General Office of the State Council published a new policy document regarding the SCS. There are two notable sections within this document that should be flagged. First, Section 19, “Strengthen Party Leadership,” reasserted the Chinese Communist Party (CCP)’s leadership over the SCS and encouraged developers to improve planning and coordination amongst the disjointed parts. Section 19 is important to highlight because it indicates that the CCP intends to centralize and consolidate the currently fragmented system.

Perhaps more concerningly is Section 23 because it explicitly connects the SCS to national security and new data privacy regulations. This is concerning because the CCP has notoriously used “national security,” and similarly ill-defined phrases like “counterterrorism,” to justify imprisoning Hong Kong activists and detaining Uighurs in Northwest China. Moreover, Section 23 explicitly mentions the Personal Information Protection Law (PIPL), a data privacy regulation enacted in 2021. The CCP has already used such regulation as “a show of force” against Chinese tech giants such as when it interfered with Alibaba’s Ant Group IPO. These actions indicate that the CCP intends to continue using law, regulations, and systems to centralize its ability to monitor and control individuals and corporations.

Case Study: Blacklists

One way the government controls individuals is through blacklists. Blacklists are mostly used to punish “judgment defaulters,” individuals or organizations who have the ability to, but have not repaid their debts. Blacklisted individuals are placed on a no-fly list or even restricted from sending their children to high-cost private schools. Blacklisted companies may be restricted from participating in government projects, accessing government benefits, or applying for permits.

Enforcement of blacklists is one example of a central feature of the SCS—joint disciplinary action. The Supreme People’s Court’s Judgment Defaulter List is effective because 44 government departments have agreed to restrict services for people placed on the Defaulter List. These people can be tracked within the SCS because the government links blacklists to individuals’ national identification numbers —similar to US social security numbers. Once someone like a judgement defaulter is labeled as “untrustworthy” within the SCS, the government punishes that individual by interfering with their daily lives. While punishing tax and debt evaders is a common practice in many countries, the CCP has not articulated a limit to its ability to intrude an individual’s life.

Conclusion

China’s SCS is currently a fragmented regulatory system primarily used to govern the financial industry. And the SCS represents a broad policy agenda to build “trustworthiness” in China. Nevertheless, broad policies with ill-defined limitations are suspect. If the government can prevent parents from sending children to high-cost private schools, how much farther may the government go? Given the CCP’s track record of detaining and imprisoning individuals, such concerns are legitimate. While Western media’s portrayal of the SCS as a dystopian system is currently inaccurate, the world should continue to monitor China’s use of the SCS for oppressive behavior.

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