Social Crediting in China and Its Global Impact

China's social crediting system is a complex network that assigns a score to citizens based on their behavior. This score can affect everything from loan applications to job prospects.

The system is managed by the National Development and Reform Commission, which uses a combination of data from government agencies, social media, and other sources to calculate scores. This data includes factors such as tax payments, traffic fines, and community service.

Citizens can see their scores on a government app, and can also use the app to appeal any discrepancies. The app also provides information on how to improve scores, such as paying taxes on time or volunteering in the community.

The Chinese government claims that social crediting promotes social harmony and encourages good behavior. However, critics argue that the system is too broad and can unfairly penalize citizens for minor infractions.

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The history of China's social credit system is fascinating. It all started with the Qin dynasty in 221-206 B.C., where a meritocratic assessment system was implemented.

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The idea of monitoring individuals' behaviors through public record systems emerged in the 20th century with the "hukou" in 1958. This system registered households and monitored domestic movement in China.

The current social credit system went through early iterations in the mid-90s when the People's Bank of China started sharing financial credit information with commercial banks. This marked a significant shift towards a more comprehensive system.

In 2004, President Jian Zemin introduced the social credit system, which was initially predominately economic. Regional pilots of the program started in 2009, and the blacklist was established in 2013.

The Chinese government adopted the social credit system in its current form in 2014.

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In 2014, the Chinese government officially launched the Social Credit System as a pilot program in the provinces of Shanghai and Shandong. The system aimed to improve trust and cooperation between citizens and the government.

The system was designed to reward good behavior and punish bad behavior, with citizens earning points for participating in community activities and paying taxes on time. This was a significant departure from the earlier focus on financial credit.

Businesswoman Huang Wenyun's research and contributions to the development of the Social Credit System continued to be influential, with her ideas on credit management and rating shaping the system's design.

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The history of China's social credit system is a fascinating and complex one. It all began in the Qin dynasty of 221–206 B.C., where a meritocratic assessment system was implemented, although it was quite rudimentary.

The concept of public record systems to monitor individuals' behaviors emerged in the 20th century with the "hukou" in 1958, which registered households and monitored domestic movement in China. This laid the groundwork for the social credit system we know today.

In the mid-90s, the People's Bank of China started sharing financial credit information with commercial banks, marking an early iteration of the social credit system. This economic focus continued until 2004, when President Jian Zemin introduced the social credit system, expanding its scope beyond just financial transactions.

Regional pilots of the program began in 2009, and the blacklist was established in 2013. By 2014, the Chinese government had adopted the social credit system in its current form.

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Here's a brief overview of the consequences of breaching trust in the social credit system:

Keep in mind that the social credit system has undergone significant changes and iterations over the years, and its current form is a result of these developments.

In China, social credit is a broad policy category that seeks to enforce existing laws, regulations, and contracts through digitization, data collection, and data centralization.

There is no unified social credit system, and multiple systems are operated by both the state and private companies, with different approaches and evaluation systems.

The Chinese government's approaches to social credit are described in various documents, but there is no integrated system or comprehensive document outlining a unified approach.

Private companies had initially developed numerical social credit scores, inspired by FICO, but this practice was eventually abandoned by the government, and the scores are now limited to private credit rating and loyalty programs.

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China's social credit system is a broad policy category that focuses on enforcing existing laws, regulations, and contracts, rather than introducing new restrictions. It's a complex system with multiple social credit systems in operation, some designed and operated by the state, while others are operated by private companies.

There is no unified, numerical credit score for businesses or individuals, but rather various evaluation or rating systems used by national and local platforms. This lack of a single, unified system can make it difficult to understand the scoring mechanism.

The system is coordinated by the Central Comprehensively Deepening Reforms Commission, which oversees the implementation of social credit policies. This top-level design approach aims to create a more trustworthy society by combating corruption, scammers, and other problematic issues.

Social credit is not just about financial creditworthiness, but also about promoting "trust in society" by keeping individuals and companies accountable for their actions. This concept is reflected in the government's efforts to combat issues like tax evasion, counterfeiting, and pollution.

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Government institutions receive the second highest number of enforcement actions, accounting for 13.3% of the penalties as of 2020, while less than 0.1% of all government entities were sanctioned by the system annually.

The social credit system targets government agencies, assesses local governments' performance, and focuses on financial problems such as local governments' debts and contract defaults.

Local governments are encouraged and rewarded by the social credit system if they successfully implement and follow the orders from the central government.

The Central Government hopes the system can improve "government self-discipline."

Less than 0.1% of all government entities were sanctioned by the system annually, which suggests that the system is not overly punitive towards government institutions.

Government institutions are assessed based on their financial performance, including debts and contract defaults, which are considered negative factors of credit ratings.

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People and businesses with high social credit can enjoy several benefits under China's Social Credit System. Good interest rates at banks are one of them, offering better loan terms that make it easier to buy homes and start businesses.

Favorable loan terms are just the beginning, as those with high social credit also get fewer inspections and audits. This means less scrutiny overall, which can be a huge relief for individuals and companies.

Companies with high social credit can also take advantage of simplified administrative procedures. For example, those classified as "Advanced Certificate Enterprise" are fast-tracked for customs clearance, making it easier to do business in China.

Here are some specific benefits of high social credit in China:

In China, the process of getting on a blacklist is straightforward: you must be capable of complying with court orders but actively avoid doing so.

The Supreme People's Court's blacklist is a powerful tool for recovering fines and delinquent repayments, with tens of trillions of RMB recovered as of 2023.

To be removed from a blacklist, you'll need to file for credit repair, which involves correcting the impact of the underlying violation and committing to abide by laws and regulations in the future.

The credit repair process can take up to two to five years to complete, and authorities will review your request carefully before approving it.

Here's a breakdown of the procedures for removal from blacklists:

Once removed from a blacklist, penalties are ended, and you'll have a clean slate.

In China, the no-fly and no-ride lists are administered by separate agencies: the Civil Aviation Administration of China handles the no-fly list, while the National Railway Administration is in charge of the no-ride list.

If you're placed on either list, you'll face a travel ban, which can last anywhere from six to twelve months. This means you won't be able to buy new tickets for planes or high-speed trains during that time.

By May 2018, over several million flight and high-speed train trips had been denied to people on the blacklist. As of June 2019, 26.82 million air tickets and 5.96 million high-speed rail tickets had been denied to those deemed "untrustworthy".

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The penalties for low social credit scores in China are severe. Travel bans can extend to international travel, restricting people's ability to leave the country.

Here are some examples of penalties for low social credit scores in China:

In total, over 30 million air and high-speed rail tickets had been denied to people on the blacklist by July 2019. This highlights the significant impact of the no-fly and no-ride lists on travel in China.

In China's Social Credit System, approvals are a significant aspect of the system's rewards for individuals and businesses with high social credit. They enjoy fast-tracked approvals, which can be a huge time-saver.

Companies classified as "Advanced Certificate Enterprise" often get fast-tracked for customs clearance, making it easier to do business in China. This is a major advantage for businesses, as it saves them time and resources.

People with an "A-rating" may have their tax returns processed more quickly than those with low credit. This is just one of the many benefits of having a high social credit score.

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According to a study by Professor Genia Kostka, 80% of Chinese citizens either strongly approved or approved of China's Social Credit System in 2018. This suggests that the system is well-received domestically.

Here are some benefits of fast-tracked approvals:

These benefits make it easier for individuals and businesses to thrive in China, and it's no wonder that many strive for high social credit scores.

Social crediting has a significant impact on people's self-esteem, with 75% of individuals reporting an increase in self-confidence after receiving a social credit score. This boost in confidence can be attributed to the sense of accomplishment and recognition that comes with earning credits.

The public perception of social crediting is complex, with 40% of respondents viewing it as a positive force for good, while 30% see it as a means of social control. Interestingly, this divide is largely influenced by age, with younger generations being more open to the idea of social crediting.

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The impact of social crediting on mental health is also a concern, with 25% of individuals reporting feelings of anxiety or stress when their scores are low. This highlights the need for a more nuanced approach to social crediting, one that takes into account the potential emotional consequences of these systems.

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The Chinese Social Credit System has a complex system of blacklists and redlists, which raises questions about whether this is a utopian or dystopian approach to governance.

Blacklists are managed by state agencies and local authorities, and there are hundreds of them throughout the country.

Once on a blacklist, it can take up to two to five years to be removed.

The system is designed to reward high social credit scores, with redlists featuring the country's most outstanding members of society.

These individuals and businesses enjoy rewards such as access to capital and fast-tracked approvals.

Public opinions have been shaped by various perspectives, but one notable observation is that European misconceptions of social credit in China have become a source of amusement among Chinese Internet users.

Vincent Brussee, an academic, wrote about this phenomenon in 2023, highlighting the disconnect between how social credit is perceived in Europe and how it's actually experienced in China.

The amusement among Chinese Internet users suggests that they see these misconceptions as comical or exaggerated, implying that there's a significant difference between how social credit is understood abroad and at home.

Misconceptions about the social credit system and its connection to personal credit scores are widespread.

One common misconception is that the social credit system is directly linked to personal credit scores, but this is not the case.

The pilot programs initiated in 2015, including Alibaba's Zhima Credit, were actually private market credit initiatives aimed at assessing users' credit worthiness.

These programs were never intended to be a part of the broader social credit system, and they were not linked to the financial system.

Despite this, there was significant media speculation that Zhima Credit might turn into a national social credit system by 2020.

In reality, Zhima Credit became a loyalty program that rewarded users for using Alibaba services and shopping platforms.

A specific example of a misconception is the claim that people could lose social credit for playing too many video games, but this was never implemented as a metric.

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Foreign Individuals Affected by the Social Credit System?

Foreign individuals visiting China don't need to worry about their social credit score, as the system only ranks Chinese citizens.

However, individuals who relocate to China on a visa with the intent to work should pay attention to China's social credit system.

Businesses operating in China, on the other hand, receive a corporate social credit score based on factors like tax payments, debt payments, and employment law compliance.

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In 2018, the New Economics Foundation compared the Chinese citizen score to other rating systems in the United Kingdom. These included using data from a citizen's credit score, phone usage, rent payment, and so on.

The Chinese citizen score was used to filter job applications, determine access to social services, and even determine advertisements served. This highlights the potential for social crediting to influence various aspects of life.

The use of phone usage data in the UK's rating system raises questions about the extent of personal data collection and its impact on individual freedoms.

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In 2018, the New Economics Foundation compared the Chinese citizen score to other rating systems in the United Kingdom.

The Chinese citizen score was found to be quite different from those used in the UK, which included using data from a citizen's credit score, phone usage, and rent payment to filter job applications and determine access to social services.

In the UK, these rating systems were used to determine advertisements served to individuals, showing how personalized marketing can be based on a person's behavior and data.

The Chinese citizen score, on the other hand, had a more limited scope, but still had significant implications for citizens' lives.

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The corporate social credit system in China rates businesses based on factors like paying taxes on time and maintaining proper licenses. This is in contrast to the social credit system, which rates individuals and entities on a broader range of criteria.

The corporate social credit system specifically looks at a company's behavior, including how they treat their partners and whether they meet industry requirements. This is a key distinction from the social credit system, which takes into account a person's honesty and devotion to family, among other factors.

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Businesses that don't comply with regulations are placed on the "irregularity" list, giving them a chance to improve their score and reputation before being blacklisted. This is a warning sign that a company may need to take action to avoid more serious consequences.

Here are some key factors that affect a business's corporate social credit score:

These factors are critical to a company's success in China, and failing to meet them can have serious consequences.

The social credit system works by collecting data on individuals and businesses through various mediums, including financial and government records and online credit platforms.

This data is then analyzed to give each person or business a social credit score, which determines their trustworthiness.

Those with a good social credit score can enjoy perks like waived rent deposits, tax breaks, and work promotions.

On the other hand, those with a bad social credit score may face penalties like loan denials, restricted travel, or public shaming.

Good actions for citizens can include donating blood or donating to charity, while bad actions might be things like driving while intoxicated.

For businesses, good actions can include timely payments, donating to charity, or getting good reviews from customers and business partners.

Bad actions for businesses might include missed payments, employee disputes, or noncompliance with local employment laws.

The social credit system has its fair share of benefits. The system holds citizens and companies accountable, which is a positive aspect of it.

One of the advantages of the social credit system is that it motivates people and businesses to uphold the law. This is a great way to maintain social order.

Some people might be concerned about the safety implications of the social credit system, but it could actually increase safety in China. This is a significant benefit of the system.

The system's ability to hold citizens and companies accountable is a key pro, making it a fair and just way to maintain social order.

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Businesses in China are held to a high standard under the social credit system, and can face penalization for late or missed tax or loan payments, employment disputes, poor product quality, or lack of proper licensing.

Companies are also responsible for who they conduct business with, and can face penalization even if they're in good standing if they partner with a company that has been penalized.

As of 2020, over 73% of enforcement actions since 2014 have targeted companies, and around 1-2% of all companies were sanctioned by the system annually.

The Social Credit System is a complex mechanism that impacts businesses in significant ways. As of 2020, over 73.3% of enforcement actions since 2014 have been targeted towards companies. Companies with good credit scores will enjoy benefits such as good credit conditions, lower tax rates, less custom checks, and more investment opportunities.

Government plans also envision real-time monitoring of a business's activities, which could result in a lower score almost instantly for infractions. However, whether this will actually happen depends on the future implementation of the system as well as on the availability of technology needed for this kind of monitoring.

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Companies need to conform to government rules, such as following the COVID-19 containment guidelines, to improve their credit score. Businesses that operate under the social credit system are held to a high standard, and companies that are late on or miss tax or loan payments could expect a poor social credit score.

Businesses are also responsible for who they conduct business with, and a company in good standing could still face penalization if it conducts business with another organization that has also faced penalization. The goal of the Social Credit System is to establish a self-enforcing regulatory regime fueled by big data in which businesses exercise "self-restraint".

For companies with bad credit scores, they may face unfavorable conditions for new loans, higher tax rates, investment restrictions, and lower chances to participate in publicly funded projects. The central government can use social credit data to offer risk-assessed grants and loans to small and medium enterprises (SMEs), encouraging banks to offer greater loan access for SMEs.

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Companies can check their corporate credit scores using the National Enterprise Credit Information Publicity System (NECIPS) or CreditChina.

To use CreditChina, navigate to the homepage, click on the “Credit” tab, and input your business name or code.

CreditChina is a more user-friendly database where you can see your business’s basic information and any administrative penalties, tax errors, unpaid wages, or payment defaults you are at fault for.

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To fix your corporate social credit score, you may need to rectify problems through actions like cutting off a supplier that is in bad standing or making up for any lost payments.

Less serious infractions are easier to fix, while more serious ones require a lengthier process.

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Social crediting is a concept that's gaining traction, and for good reason. It's a way to acknowledge and reward individuals for their positive contributions to society, rather than just focusing on their financial wealth.

By recognizing and valuing social crediting, we can create a more equitable and compassionate society. This is evident in the way that social credits can be used to provide essential services to those in need, such as food, healthcare, and education.

The benefits of social crediting are numerous, and include increased community engagement and a sense of belonging.

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Expanding into China can be a daunting task, but it's essential to be prepared for the country's unique compliance regulations. Businesses must meet these regulations before hiring or operating locally to avoid penalties.

China's social credit system is a key aspect of its compliance regulations. Businesses that are not compliant could face significant reputational damage.

Fines are just the beginning for non-compliant businesses in China. Travel bans, inability to obtain credit, and other severe consequences can also occur.

To navigate these complex regulations, consider partnering with a compliance expert like an employer of record (EOR). They can help keep your social credit score high.

Understanding China's labor and employment laws, tax laws, and other legal requirements is crucial before expanding into the country. A compliance partner can help you stay on top of these regulations.

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