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2019-08-28 | All chapters

European Chamber report on China’s Corporate Social Credit System a wake-up call for European business in China

The European Union Chamber of Commerce in China, in cooperation with Sinolytics, today released The Digital Hand: How China’s Corporate Social Credit System Conditions Market Actors, a comprehensive study on China’s Corporate Social Credit System (SCS, or System).

Until now, the discussion about China’s SCS has been primarily focussed on its potential impact on individuals, with the ramifications for business remaining largely under the radar, despite the considerable disruptions that the System will bring to all companies in China. With the System’s rollout set for 2020, the European Chamber has released this major report to address the gaps in public knowledge.

The Corporate SCS uses modern technologies to monitor, control and steer market participants. It comprises a diverse range of rating requirements, which form the basis for calculating regulatory ratings awarded to all market actors. Companies’ behaviour will be continually monitored, with scores being adjusted accordingly. If businesses fail to clearly grasp all aspects of the System and what they need to do to comply, they risk serious repercussions like sanctions or even blacklisting:

  • Compliance challenges: most rating requirements are concerned with strict compliance with market regulations. International companies with strong internal compliance systems will generally be well placed to maximise rating results but need to have a full and precise understanding of what needs to be done. SMEs may struggle in particular due to the additional resources required.
  • Strategic challenges: choosing the right partners and suppliers—and then regularly monitoring them—will become a part of running a business, as their behaviour, trustworthiness and ratings will influence a company’s own credit score.
  • Challenges to corporate data integrity: the system of regulatory ratings necessitates the collection of massive amounts of company data, mostly through mandatory data transfers to government authorities, creating an increasingly complete disclosure of a company’s profile. Large data transfers are likely to include some sensitive data points, such as technological details and personnel information.

“China’s Corporate Social Credit System is the most concerted attempt by any government to impose a self-regulating marketplace, and it could spell life or death for individual companies,” said Jörg Wuttke, president of the European Union Chamber of Commerce in China. “For better or worse, China’s Corporate Social Credit System is here to stay. Businesses in China need to prepare for the consequences, to ensure that they live by the score, not die by the score.”

“The Corporate Social Credit System is no longer just a vision,” said Sinolytics CEO Björn Conrad. “The system already collects large amounts of data, rates performance and impacts companies’ business operations. With implementation of the Corporate SCS now moving into the decisive stage, this report provides a starting point for European business to get ready for its challenges, preferably before it fully unfolds.”

Please click here to download the survey report.

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About the European Union Chamber of Commerce in China
The European Union Chamber of Commerce in China (European Chamber) was founded in 2000 by 51 member companies that shared a goal of establishing a common voice for the various business sectors of the European Union and European businesses operating in China. It is a members-driven, non-profit, fee-based organisation with a core structure of 31 working groups and fora representing European business in China. The European Chamber is recognised by the European Commission and the Chinese authorities as the official voice of European business in China.

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Yichi Zhang