Table of Contents
showSpending too much on recruitment, payroll or global HR?
We help you find the Best Providers at the lowest cost.
Imagine a world where every action, financial decision, and social interaction contributes to a score that determines your access to resources, opportunities, and even the ability to travel. What may sound like a dystopian sci-fi novel is, in fact, an impending reality for millions of people in China.
The China Social Credit System is a regulatory framework designed to assess the trustworthiness of individuals, businesses, and organizations. Here, we explain how this system works and what this means for those living and working in China in 2024.
Key Takeaways
The China Social Credit System is a comprehensive system designed to evaluate the trustworthiness of individuals, companies, and government entities.
Data collection, scoring criteria, and collaboration between government agencies & private companies are used to incentivize good behavior with rewards or punishments.
Ethical concerns such as privacy, data accuracy & state control must be examined for potential consequences on the international community.
China’s social credit system is a collection of databases and initiatives designed to evaluate the reliability of individuals, companies, and government entities. It encompasses both traditional financial creditworthiness and “social creditworthiness.” The system’s operational structure consists of data collection and aggregation, scoring criteria, and the involvement of government agencies and private companies.
The dispersed nature of the social credit system in China has led to it sometimes being described as multiple social credit systems.
The nationwide social credit system aims to create a more transparent and accountable society. By evaluating behavior and trustworthiness across all areas of life, the system aims to improve Chinese citizen’s and businesses’ overall quality of life. We will consider this national credit management and trust system in detail, looking at the following:
Rewards and punishments — what happens if you have good social credit, and what happens if it goes down?
Impact on businesses — the social credit system doesn’t just impact ordinary people (“natural persons”); it applies to corporations (“artificial persons” as well
Debunking myths and misconceptions — much of what is written about the international social credit system is inaccurate and misleading.
International comparisons and global perspectives — many countries have national credit systems that score individuals, so how is China different?
Ethical concerns and controversies — the Social Credit System has its controversies. Critics argue that the system infringes individual privacy and allows the Chinese government to control its citizens.
Challenges and opportunities — we explore the potential benefits of the social credit system to individuals and companies that cultivate excellent scores.
The idea of tying social status to good behavior, as proven by a centralized rating system, originated in the ancient world; imperial China developed a system of testing officials on knowledge of Confucian classical literature, many of which dealt with good moral behavior as the foundation of a strong state.
Behavioral tracking systems have been established for decades in modern China; the Hukou system registers households and individuals and tracks and controls citizens’ movements within China. It also assists in benefits administration through regional and city government programs.
Personal records, dang’an, are kept on every individual in modern China: These files are held by the Public Security Bureau and citizens’ Work Units (danwei).
As China allowed the creation and flourishing of private corporations, following the three reforms and market orientation of Deng Xiaoping, a change occurred: Many of the old top-down methods of managing industrial affairs, enforcing judiciary decisions, and ensuring regulatory compliance became less effective. Establishing trust, in particular, has become a key issue in modern China.
The old demand economy was not necessarily less corrupt than today’s hybrid model; however, the hierarchies of the state system provided a clear structure of authority and responsibility.
As in the pre-reform era and Imperial China, most governance is handled by regional authorities. In worst-case scenarios, this “regionally decentralized authoritarian” structure has allowed loopholes for corporations engaged in unsafe or illegal practices to move to new jurisdictions with little or no consequences for their actions.
Conversely, the lack of communication and shared record-keeping between different regions can also impair the growth of successful businesses; in the absence of a national system to establish trust, local business owners often only wish to work with partners trusted within their social circle. This way of doing things is known as guanxi.
Finally, individuals and government officials in modern China often escape paying debts and fines, and corrupt government institutions have been able to rely on superiors or regulators looking the other way. The Social Credit System aims to solve these issues through enforcement, loss of privileges for lawbreakers, and “public shaming” through the publication of blacklists.
The Social Credit System (SCS) was created to measure chengxin or trustworthiness. Individuals, potential business partners, and regulators would receive a final trustworthiness score to gauge others. The concept of chengxin/trustworthiness itself is broken down into further subcategories, covering:
- zhengxin (financial credit)
- xinyong (social credit)
- gongsi gongxin (judicial enforcement),
- shangwu chengxin (commercial trustworthiness),
- shehui cehngxin (societal trustworthiness), and
- zhengwu chengxin (government integrity).
Essentially, the SCS establishes financial credit, rates trustability, measures CSR and assists in punishing noncompliance. This is no mean feat for a country with four times the population of the US, especially considering that until recently, many government agencies relied on typewritten paper documentation.
As of 2022, over 33 million businesses had SCS scores, and 80% of China’s cities, regions, and provinces had implemented SCS programs or had developed plans to do so. By 2024, this had started to change, with many regions abandoning their trial programs.
The Social Credit System doesn’t just deal with businesses, though. The SCS also targets citizens, non-profit organizations, government officials, and the Judiciary.
The entire project is a form of public-private partnership. Tech companies have built up the regional infrastructure needed for the system, while larger companies have assisted with the rollout. Novel partnerships have also been created on the legal enforcement level; Alibaba has assisted the courts by providing delivery address information, while Douyin, a social media company, works with local courts to pressure individuals who have defaulted on legal judgments by sharing the information with the public.
Though China, like many other nations, has stepped up its public surveillance infrastructure in recent years, the SCS is arguably unconnected to these developments. It is more similar to the credit rating systems used in other countries, albeit combined with CSR guidelines and ratings, a record of criminal infractions and noncompliance, and a framework for tracking general moral behavior. It is, essentially, a credit score with Chinese characteristics.
The central government is still in the process of formulating and implementing the China Social Credit System. Most recently, legislation for the Social Credit System is outlined in the ‘Plan on Building the Rule of Law in China (2020-2025)’ and is still in draft form.
This ongoing development highlights the evolving nature of the Social Credit System as the Chinese government continues to adapt the system to address societal challenges and improve trust within the community.
Is media reporting on the SCS tinged with sensationalism and inaccuracies? How might it evolve over the next ten years?
To shed light on these questions, in the video above, Jeremy Daum, a distinguished research scholar and senior fellow at the Paul Tsai China Center, is joined by Dai Xin, a legal theory associate professor from Peking University Law School, and Vincent Brussee, an associate analyst at the Mercator Institute for China Studies (MERICS), in a live webinar designed to demystify the social credit system.
So far, the SCS is not a general, coordinated method but not a single unified system. This experimental, regionally-based method of governance reform has been used for many projects in modern China and was described by Deng Xiaoping as “crossing the river by feeling the stones.”
Currently, there are many regional and industry-specific “social credit” lists, as well as a national SCS list maintained by two institutions:
- The National Development and Reform Commission (NDRC) is the body in charge of implementing China’s macroeconomic policy and is overseen by the State Council.
- The People’s Bank of China (PBoC), China’s central bank, maintains the actual lists and scores of organizations and individuals.
The scope of the SCS is updated yearly in the Basic Catalog of Public Credit Information by the NDRC and the PBoC. This catalog defines what information may and may not be collected when tabulating an individual or organization’s social credit score.
So far, the system has mainly been used as a database tracking corporate compliance and a law enforcement mechanism for rectifying non-compliance. Noncompliant companies are referred to as “blacklisted,” though the “blacklist” is one of four punitive classifications.
The Social Credit System operates through data collection from various sources, scoring criteria based on financial and social creditworthiness, and the involvement of government agencies and private companies. Below, we explore each of these features in detail.
1. Data Collection and Aggregation
Data is collected and aggregated from multiple sources, including government entities and big tech companies, to create a comprehensive profile of individuals and businesses. This diverse range of data sources allows the system to evaluate trustworthiness across all aspects of life, from financial history to social behavior.
Credit China, a digitized library, provides access to various databases, including information on those who have failed to comply with court judgments, data from verified Chinese universities, and criminal conviction information (e.g., Hospitals identified to have committed insurance fraud).
By consolidating data from traditional sources such as financial, criminal, and governmental records, the system can create a more accurate and nuanced assessment of trustworthiness.
2. Scoring Criteria
The Social Credit System evaluates individuals and businesses based on a complex combination of personal data and behavior. Scoring criteria include financial creditworthiness, legal compliance, and social behavior, with different weightings depending on the region. The score can range from 1 to 1000, with a maximum of 1,300 points.
For example, the Zhengxin system, maintained by the PBoC, records the financial history of 1.14 billion Chinese individuals and provides them with credit scores. Although the system does not give scores for the nearly 100 million companies it tracks, it does evaluate their adherence to regulations, financial statements, and audit reports, which are crucial for financial institutions.
This scoring system empowers the Government to monitor and assess the trustworthiness of its citizens and businesses while also promoting positive behavior through rewards for adherence to established criteria.
2. Government Agencies and Private Companies
The Social Credit System involves collaboration between government agencies and private companies, with tech companies playing a significant role in data collection and infrastructure development. Some key aspects of the system include:
Collaboration between government agencies and private companies
Tech companies play an important role in data collection and infrastructure development
City or provincial governments engaging smaller tech companies to construct the system’s technical infrastructure, such as databases and data centers.
The synergy between government agencies and private companies fosters an efficient operation of the Social Credit System, guaranteeing accurate evaluation and scoring of individuals and businesses with the collected data.
The Social Credit System has consequences for individuals and businesses, with rewards for good behavior and punishments for poor behavior. Adherence to the system can result in access to certain privileges that can impact an individual’s daily life, such as priority for school admissions, employment opportunities, and access to cash loans and consumer credit.
On the other hand, the system also imposes restrictions on those exhibiting poor behavior. Consequences so far have included being prohibited from using high-speed rail services, information being made public, and being barred from participating in government procurement bids.
Adherence to regulatory requirements can considerably impact companies’ social credit rating, affecting their ability to engage with other businesses and the Government. Companies can benefit from initiating social initiatives, contributing to philanthropic organizations, or engaging in other corporate social responsibility (CSR) initiatives.
The system’s duality of rewards and punishments functions as incentives and deterrents, steering individuals and businesses towards responsible actions and positive societal contributions.
Social Credit scores apply equally to private, state-owned, and foreign-owned companies. In most cases, the SCS has not added any extra compliance requirements or punishments that did not exist previously. It serves to:
- Collect and collate information more quickly between government entities
- Publish that information for use by private entities
- Ensure compliance by streamlining punitive actions, and
- Reward companies with strong CSR.
Anyone with a Chinese IP address may look up corporate social credit scores on the CreditChina.gov.cn website. In many ways, this levels the playing field for foreign-owned companies, who may not have the local network of “guanxi” that was previously needed to attract and judge potential local partners.
The NDRC and PBOC also publish the National Basic List of Punishment Measures for Untrustworthiness; this document defines and lists the punishments mandated for various dishonest behaviors. These include restrictions on access to some industries, markets, sources of funding, preferential policies, and evaluation services. They may also include credit investigations and supervisory measures.
To maintain a high SCS score, companies should conduct internal and external audits on their supply chains and partners. SCS consultants can also provide suggestions on how companies can raise their scores by contributing to the larger goals of the Central Government and following CSR guidelines.
If a company is noncompliant, this may be rectified by appealing to the relevant regulatory institution. The business must provide a credit repair promise and business registration certificates and wait for a decision from the institution. For Serious Breaches of Trust, the company must also provide documentation showing that they have rectified or paid the penalty imposed and a credit repair training certificate.
Rectification could include paying back taxes, switching from a supplier or partner who has been blacklisted, repayment on an outstanding loan, or making changes in the workplace to comply with regulations. If a company feels that published SCS info is inaccurate, it may complain to the department supplying the data.
Businesses with high social credit ratings may enjoy preferential treatment in government procurement processes, more access to financing, and a better reputation in the market. Conversely, companies with low social credit ratings may face difficulties obtaining funding, engaging in government procurement processes, and experiencing a negative impact on their reputation.
Companies found to be noncompliant are classified in 4 ways: Untrustworthy (the “red list”), Seriously Untrustworthy (the blacklist), Abnormal, and Seriously Illegal and Dishonorable.
- Untrustworthy (red list): These companies could make their infractions public and lose access to some markets or preferential policies. Financial, lending, bidding, and business cooperation organizations will also be allowed to limit their engagement with red-listed companies.
- Seriously Untrustworthy (blacklist): This list tracks dangerous violations of the law, such as food production without the proper license, manufacturing counterfeit drugs, not providing complete consumer information, or falsifying documentation. The blacklist is used to coordinate legal punishment following existing compliance regulations.
- Abnormal Entities: These companies are already included on the blacklist but have submitted incomplete or “abnormal” information, such as; failing to publish an annual report, concealing information in corporate reports, or being uncontactable. Companies on the Abnormal list could be prohibited from bidding on government projects, purchasing state-owned land, government procurement, or accessing financial services.
- Seriously Illegal and Dishonest Entities: Companies on the abnormal list have not rectified the relevant issues and are relegated to the most severe classification. Violations and penalties are punished on the list for three months to three years. Companies with bad credit can take measures to rectify the situation after one year of blacklisting, following a protocol set out by the NDRC. Successful proof of completion of the required measures can remove companies from the blacklist and even remove publicly posted information regarding past violations.
Companies rated Seriously Illegal and Dishonest may only apply for their removal from the list after three years. Upon submission of all documented proof of compliance, a decision will be made whether to remove the company from the list within 15 days.
Companies with high SCS scores receive market-based incentives such as simplified access to public services, funding, support, and reduced inspection frequency. Private companies and individuals can also provide preferential treatment and access to funding or business opportunities for high-score companies.
Several myths and misconceptions surrounding the Social Credit System need to be addressed. One common misconception is that the system functions as a centralized score for all citizens when there is no such centralized social credit score for each Chinese citizen.
Another source of confusion is the difference between Alibaba’s Zhima Credit and the Government’s Social Credit System. Zhima Credit is an elective platform for Alibaba customers, whereas the China Social Credit System is a comprehensive framework established to evaluate the reliability of individuals, businesses, and organizations. Zhima Credit evaluates an individual’s creditworthiness based on their payment history and debt, capacity to meet contractual obligations, and personal characteristics.
International Comparisons and Global Perspectives
While other countries have similar systems to assess trustworthiness, China’s Social Credit System is unique in its scale and government-driven approach. For example, a credit score in the United States can have repercussions similar to those of China’s social credit system for individuals and businesses. However, the China Social Credit System is viewed as a paradigm shift compared to other rating systems due to its scope and potential for state control.
The potential global implications of the Social Credit System have raised concerns among international observers. Some of the key concerns include:
Foreign firms operating in China are experiencing increased expenses to comply with data disclosures.
The system’s potential for state control and surveillance has sparked debates about privacy.
There are concerns about the accuracy of the data used in the system.
There are concerns about the potential misuse of power.
These concerns highlight the need for careful consideration and regulation of the Social Credit System to ensure its fair and transparent impact.
Despite these concerns, we must acknowledge the Social Credit System as a work in progress, with its implementation and effectiveness influenced by continual development and regional variations. By understanding the global context and comparing the system to similar initiatives in other countries, we can better evaluate its potential impact on the international community.
The introduction of the Social Credit System has led critics to raise a range of questions regarding the ethics of such a system. We consider the key topics below:
The Social Credit System does not (thus far) create new restrictions on corporations or individuals; it merely collates data to enforce existing laws. This creates another layer of public accountability and avenues for punitive damages for illegal behavior.
Will the SCS lead to domestic spying between neighbors and family members, as has occurred in many Communist countries? The Communist Party of China, for its part, states that the system will not be used to curtail freedoms and domestic spying, though only time will tell whether or not these scenarios will come to be. At present, most Chinese citizens polled support the system.
Some observers have expressed concern that negative rankings could lead to a downward spiral in “bad behavior,” ultimately creating an underclass of citizens. It should be noted, however, that this criticism could be directed at most credit collection and punitive legal systems.
Many commentators have expressed concern that the combined presence of mass surveillance and social credit could be used to seriously curtail freedoms for some citizens, especially for minority groups such as Uighurs or Tibetans. In the context of an authoritarian state, this is entirely possible. However, the likely public backlash against such draconian measures may make them undesirable.
Similarly, China’s status as a leading technological innovator, particularly in state-sponsored digital currency and AI technologies, has led some to believe that the SCS could lead to social engineering by algorithm, a concept eerily similar to many science fiction dystopias. So far, the system is far from this level of advancement; many agencies are still digitizing paper documentation to contribute to SCS lists, the current Credit China website is essentially a simple database, and human intervention is required to enact any punitive actions or credit downgrading. For instance, the pilot social credit project in Rongcheng employs roving “information gatherers” who keep track of citizens’ good deeds via notebook and pen.
4. What about inaccurate data hurting citizens?
Data accuracy is another concern, as the system aggregates and analyzes data from various sources. Inaccuracies in data collection or bias in the scoring system could lead to unfair punishments and restrictions for individuals and businesses.
The Social Credit System presents challenges and opportunities in the future, including Ongoing development and refinement of the system, Regional variations in its implementation, and the potential for technological advancements to shape its effectiveness.
The system has been criticized due to its potential for use as a mechanism of social control, as well as its opacity and potential for misuse. However, the Social Credit System also offers potential benefits, such as rewarding beneficial activities like environmental protection and enhancing market efficiency and transparency.
With the system’s ongoing evolution, maintaining informed engagement in its development and implementation is essential for Chinese citizens and the global community. Recognizing the system’s challenges and opportunities allows us to assess its potential societal and global repercussions more effectively.
The last official China Social Credit System documentation was released in 2022.
On March 29, 2022, the Chinese Government released a document indicating a shift in focus of the system toward environmental concerns (see Opinions on Promoting the Construction of a Social Credit System with High-Quality Development and Promoting the Formation of a New Development Pattern).
As of 2024, no progress on rolling out the system nationwide appears to have been made. It has been reported that all the private social credit ratings have now been closed down, and most local government pilot programs have ended.
The most progress appears to have been made with the corporate social credit score (as accessed via the ‘Credit China’ website). This now gives a full reflection of compliance across government departments.
The China Social Credit System is a complex and controversial framework designed to assess the trustworthiness of individuals, businesses, and organizations.
While the system raises ethical concerns surrounding privacy, data accuracy, and state control, it also presents opportunities for rewarding beneficial behavior, improving market efficiency, and fostering a higher-trust society. As the system continues to develop, it is crucial for individuals and businesses to remain informed and engaged in its ongoing evolution.
As of 2024, it looks as though the main focus of Chinese regulators is on Corporate Social Credit and that there may be a cooling off in developing a unified rating of individuals.
Frequently Asked Questions
China's Social Credit System is a national credit rating and blacklist developed by the government to reward responsible citizens and penalize those who break laws or social norms.
They can make full use of their privileges, take on higher-level jobs, fly first class and connect with other high scorers. Enroll their kids in better schools to help improve their social credit score since it is self-reinforcing.
The primary purpose of the China Social Credit System is to assess the trustworthiness of individuals, businesses, and organizations, with the goal of enhancing transparency and accountability in society.
The Social Credit System evaluates individuals and businesses based on financial creditworthiness, legal compliance, and social behavior, forming a complex assessment of an individual or business.
Individuals with low social credit scores may be denied access to high-speed rail, deemed unreliable in court, have their information made public, barred from government procurement bids, and prohibited from consuming luxury goods and traveling abroad.
References
- Liu, Chuncheng (2019). “Multiple Social Credit Systems in China“. Economic Sociology: The European Electronic Newsletter 21 (1): 22–32.
- Liang F, Das V, Kostyuk N, et al. (2018). “Constructing a data-driven society: China’s social credit system as a state surveillance infrastructure”. Policy & Internet 10(4): 415–453.
- Chen, Y.-J, Lin, C.-F., & Liu, H.-W. (2018), ‘Rule of Trust’: The Power and Perils of China’s Social Credit Megaproject. Columbia Journal of Asian Law, 32(1) 1-36.
- Curran, D., and Smart, A. (2021). Data-driven governance, smart urbanism and risk-class inequalities: security and social credit in China. Urban Stud. 58, 487–506. doi: 10.1177/0042098020927855
- Liu, J. (2022). “Social data governance: Towards a definition and model”. BIG DATA & SOCIETY; 9(2).
- Hansen, HK, and Weiskopf R. (2021). “From universalizing transparency to the interplay of transparency matrices: Critical insights from the emerging social credit system in China.” Organization Studies 42: 109–28.
- Brussee, Vincent (2023). Social Credit: The Warring States of China’s Emerging Data Empire. Singapore: Palgrave MacMillan.
- Inna Osetrova, ‘Digital Dictatorship: The System of Social Credit in China’ (2019) Social Science Research Network.
