The Impact of Big Data: MERICS Presents on China’s Future National Social Credit System Go back »

2017-07-17 | Beijing

The Impact of Big Data: MERICS Presents on China’s Future National Social Credit System

On Tuesday, 11th July, 2017 the European Union Chamber of Commerce in China hosted an event highlighting the upcoming, and far-reaching implementation of a national social credit system in China. The event was attended by Chamber members from a variety of different industries and institutions who came for the purpose of seeking clarity on an issue that has been seen by many as potentially concerning. Björn Conrad, Vice President of Research at the Mercator Institute for Chinese Studies (MERICS), travelled from Berlin to present their organisation’s recently released report on social credit. He provided valuable insights over the course of an hour and a half, through an informative presentation and in-depth Q&A session.

The development of a national social credit system has the potential to create a highly sophisticated and fine-tuned model for IT-backed and big data-enabled market regulation with broad implications for doing business in China. Chinese Government agencies and private companies, such as Tencent and Alibaba, already collect vast amounts of information. With the nation’s regulatory and bureaucratic capability, in combination with new technological solutions for big data processing, the large amounts of data that have been collected can be put to use to continuously monitor and govern enterprises’ as well as people’s financial and personal behaviour. The framework for this social credit system is due to be implemented by 2020.

The basic principle underlying the social credit system is the utilisation of big data to automatically generate scores for individuals and companies to reward ‘good behaviour’, while simultaneously punishing ‘bad behaviour’. For example, companies that have a high level of environmental compliance and invest in a favoured type of technology, outlined in a governmental industrial policy, will have a high social credit score and may then enjoy increased access to subsidies and be prioritised in government procurement. Companies that are non-compliant, or whose employees have a criminal past, will instead have a low social credit score and will find it difficult, or even impossible, to obtain a line of credit or issue bonds. In essence, the social credit system has the potential to bring about a new era of self-regulation.

The initial step will be to implement this system primarily in the corporate world, applying to both Chinese and foreign enterprises, utilising a business’ criminal history, reputation and financial status, past investments, previous instances of recorded misconduct, regulatory compliance and any instances of outstanding behaviour, for the purpose of regulating and restoring trust to the market. While this immense endeavour may seem like news to many, the Chinese government has actually been experimenting with credit systems since the late 1990’s, with the first pilot project, which rated both individuals and businesses, being instituted in the early 2000s.

As of now, there are 137 different commercial credit rating systems, with Alibaba’s Sesame Credit being the largest. Despite these systems capturing the imagination of the general public and quickly being interwoven into the daily lives of many Chinese citizens, it is still localised and intermittently used. Currently, there is not yet a sound and uniform way to oversee and check which firms receive loans, are issued government subsidies, have the capability to maintain a credit line or should have access to public procurement.

If implemented uniformly, this social credit system could allow for a more level playing field and ensure greater levels of compliance. However, there are of course some potential drawbacks. Some weak spots include potential pressure being exerted on foreign-invested enterprises (FIEs) and the current lack of transparency surrounding the scale of its implementation over the next five to ten years. While it is somewhat clear how the data is being collected, the algorithms used for calculating scores are not transparent and the potential penalties that stem from receiving a low credit score have many troubled. It is also not yet clear if there will be a properly instituted mechanism for recourse, should a company or individual wish to appeal a decision.

With these misgivings, the European Chamber will be closely monitoring future developments.