Article Summary: China just announced a new social credit law. Here’s what it means

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In 2014, China’s leaders released the blueprint for a “social credit system,” alongside a financial scoring plan, that would monitor citizens’ behavior and enforce “state-sanctioned moral values.” Many Western observers imagine the system as a vast technology network controlling people’s lives. Not so, says journalist Zeyi Yang, but questions remain about its economic and social implications. Yang examines the framework through its origins, its ongoing development and future plans. Business leaders interested in a detailed assessment of China’s social credit system will find valuable intelligence in this eye-opening report.

Take-Aways

• China’s credit system is built on a foundation of financial and social scoring.
• Chinese citizens are already rated on their financial activities and ability to repay credit obligations.
• While a countrywide social credit scoring system is not yet in place, local governments are instituting various frameworks to check individuals’ behavior.

Summary

China’s credit system is built on a foundation of financial and social scoring.

Western economies have well-established financial reporting systems that document consumer and business transactions. China has been working since 2014 on a structure to collect and share customer data for routine financial activities. In November 2022, officials unveiled a legal framework for a sovereign social credit system that would exist alongside a financial credit bureau. The initiative aims to create a parallel social score that reflect individuals’ trustworthiness in nonfinancial situations.

“The system that the central government has been slowly working on is a mix of attempts to regulate the financial credit industry, enable government agencies to share data with each other and promote state-sanctioned moral values – however vague that last goal in particular sounds.”

Though officials have not yet specified the rating approach, the social credit system will apply to people, businesses and government agencies. Two primary factors will drive the social credit system: “financial creditworthiness and social creditworthiness.”

Chinese citizens are already rated on their financial activities and ability to repay credit obligations.

Financial creditworthiness is straightforward: It relates to an individual’s or a company’s ability to manage credit, borrowing and repayment. The People’s Bank of China has made significant progress in monitoring and managing the credit scores and financial records of approximately 1.14 billion citizens and 100 million businesses.

“The idea is to be both a carrot and a stick. So an individual or company with a good credit record in all regulatory areas should receive preferential treatment when dealing with the government — like being put on a priority list for subsidies.”

Social creditworthiness, on the other hand, is far more opaque. Chinese leaders are seeking to attain societal cohesion by assigning a metric to citizens’ behavior, just as individuals receive financial credit scores for economic choices. A social credit rating for individuals is not yet operational; policy makers have instead focused on the development of a comprehensive database that catalogs corporate and institutional activity tied to compliance with government regulations.

While a countrywide social credit scoring system is not yet in place, local governments are instituting various frameworks to check individuals’ behavior.

In practice, the financial and social scores could serve to incentivize or penalize behavior, based on what societal goals the government intends to pursue. For example, parties committing fraud, adding to pollution or engaging in other harmful actions would receive a low rating. In the existing legal language, officials have codified “permissible punishment measures,” like exclusion from government contracts or denied access to luxury goods. State program advantages would reward good behavior, such as donating blood.

“While local governments have been much more ambitious with their innovative regulations, causing more controversies and public pushback, the countrywide social credit system will still take a long time to materialize.”

Many municipal and local communities are developing social credit ratings. For example, in the city of Rongcheng, leaders instituted a social score with a baseline of 1,000 points that increases or decreases, based on a person’s actions. Experts are uncertain whether these local examples will ultimately lead to a national system of monitoring. In the final analysis, China’s attempt to design and implement a social credit system is unprecedented and complicated, and one that will play out over the next several years, with no certainty yet on what a final version might look like.

About the Author

Zeyi Yang, based in New York City, is a journalist covering China for MIT Technology Review.