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21st Nov 2019

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The truth and reality of China's social credit system

  • China needs not only to rely on traditional means of bank credit investigation, but also the Internet and big data. (Photo: SimonQ)

To address the long-term problems in the development of market economy and adapt to the digital age, China is working to build an advanced social credit system.

This has attracted both praise and skepticism from the Western media.

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  • The punishments include preventing the defaulter from taking up certain jobs or posts (Photo: MyTudut)

While such media attention is understandable given the increasing influence of China, it should be noted that due to the uniqueness of China's market economy and the complexity of its social system, any objective and fair discussion and judgment must be based on a full understanding of the reality in China and the history of its credit system, otherwise they would be superficial or even biased.

China builds a social credit system for problem-solving and governance innovation

In 2014, the Chinese government drew up the Outline for Building a Social Credit System. Drawing upon proven practices in western countries, it developed a social credit system suitable for China's national condition with the aim of solving problems in the development of market economy and fostering innovations in social governance.

Since the establishment of China's socialist market economy in 1978, substantial progress has been made but some problems have emerged. These include tax evasion, industrial accidents, counterfeit consumer goods, food and drug hazards, economic and academic frauds, and other problems which undermine trust between citizens, between consumers and businesses (producers and sellers), and adversely affect the government integrity to some extent.

To solve these problems, the Outline of the 12th Five-Year Plan formulated and implemented by the government in 2011 put forward the idea of building a social credit system.

As its social credit system was introduced only lately, China has been able to make full use of the experience of developed economies.

A number of scholars and officials were sent to Europe, the United States, Japan and other countries for study and research. They were particularly interested in the central bank model or public management model of France, Spain and other European countries.

The Chinese government regards the development of the social credit system not only as a solution to problems in the market economy, but also as an important part of the efforts to modernise governance capacity.

As can be seen from the Outline, "social management" was replaced by "social governance", and the government's role was explained as the "supervisor" rather than "manager".

These changes indicate that China's social credit system has been designed to promote open and inclusive social governance, to involve more actors in the process of social governance, and to boost social governance efficiency while promoting healthy competition in Chinese market economy.

China builds a social credit system for advancing the rule of law

China's social credit system is built in an era of free movement of people and booming digital economy, in a fast-changing environment that is more complex than what western countries had to deal with when they established their own systems.

The challenges ahead are thus much greater. For instance, due to the diverse sources of credit rating data, to establish a sound credit evaluation system and adapt to the trend of "credit digitisation", China needs not only to rely on traditional means of bank credit investigation, but also the Internet and big data.

The Baihang Credit System was thus launched by the National Internet Finance Association – a self-regulatory organisation – in partnership with eight market-oriented entities including Zhima Credit and Tencent Credit. Its purpose is to tackle the inadequacies of the bank credit investigation system in personal credit information through credit information in the field of Internet lending.

Private credit rating companies, such as Zhima Credit, belong to an independent commercial social credit system. Associated with Alipay, which belongs to Alibaba Group, it takes daily consumption behaviors, social groups and credit histories into consideration in evaluating personal credit.

Therefore, China's social credit evaluation system is a product of cooperation between the government and society rather than an omnipotent tool for the government to take firm control.

Some foreign media organisations selectively focused on China expanding the scope of credit investigation and imposing "punishment" on citizens or institutions with poor credit records through the social credit system, "fearing" that the process will "undermine the rule of law and infringe on human rights".

The social credit system, by "rewarding honesty and punishing dishonesty", facilitates the healthy operation of market economy and provides indispensable intermediary services in every mature economy.

The actual situation in China is that the social credit system mainly aims at the prominent problems in the market, such as violation of laws and regulations, dishonouring contracts and commitments.

Based on the credit rating of the west, the social credit system expands its scope to four fields, namely government affairs credit, business credit, social credit and judicial credit. Under the social credit system, the punishment for dishonesty must be meted out within the legal scope, and there is no such phenomenon as "continuously monitoring citizens' economic and non-economic behaviors" and "extra-judicial enforcement".

Currently, China takes the list of dishonest people released by the Supreme People's Court and punishment for serious dishonest acts in transportation as the two main tools to punish dishonesty, which do not go beyond the scope of laws, and compliance with laws is the fundamental basis for the punishments.

The government document issued in 2016 clearly stipulated the four key areas for joint punishment of dishonest behaviours: food and drug safety incidents; bribery, tax evasion and fraud, and seriously undermining the order in cyberspace communication; refusal to comply with a judicial or administrative ruling despite the ability of doing so; and evading military service.

The punishments include preventing the defaulter from taking up certain jobs or posts, and the well-known ban on luxury items, high-speed rail and air tickets, and all these punishments are based on existing laws rather than new ones.

So far, there has been no evidence that an individual's social behaviour, consumption habits and political beliefs affect his or her credit, let alone justifying punishment. Foreign media organisations should respect this fact.

China's credit system conforms with the trend of times and made considerable strides

Since the Outline was implemented nearly five years ago, China's public credit system and market credit system have supplemented each other and formed a benign interaction. According to the Doing Business 2019 report released by the World Bank early this year, China's environment of doing business jumped from 78th to 46th in a year.

Reform measures including building the social credit system are important reasons for the growing vitality of the market and the greater efficiency in market regulation.

The public credit investigation system is led by the government and central bank in such countries as Germany, France, Italy, Spain, Austria, Portugal and Belgium.

Similarly, the Chinese government, as the public power, plays the role of organisation, guidance, promotion and demonstration in the social credit system: On the one hand, through strengthened efforts in government transparency and the fight against corruption, the government increases its credibility and improves the governance; on the other hand, it guides the activities of promoting business integrity in production, circulation, finance and other fields and ensures such activities meet the standards, and urges private credit rating companies to protect user information and reduce the risk of information asymmetry and the cost of information collection.

It needs to be noted, however, that China's social credit system is still in the process of continuous exploration and improvement.

For example, there is an imbalance between the development of the public credit mechanism and of the market credit mechanism. The operation of the complex and huge system still faces many technical challenges. Awareness of personal data and privacy protection needs to be raised and measures need to be strengthened.

Now, continuous efforts are required to adapt China's social credit system to the changing environment, and also to learn from the experience of developed countries and step up international cooperation.

In the digital age, to update and improve the credit system is a common task for all countries. Only by establishing an adaptive and continuously improving social credit system can we better safeguard the economic order, tap growth potential and promote social governance.

Thus, the international community's attitude to China's efforts should be optimistic and willing to strengthen exchanges to learn from each other.

All the concerns and doubts about China's social credit system will eventually be cleared up by facts. The few groundless accusations that try to label it as an "Orwellian system" are false statements against common sense and full of prejudice, which are not worth refuting.

Author bio

Fan Zhengjie is a research assistant and Zhang Bei is an assistant research fellow at the China Institute of International Studies.

Disclaimer

This article is sponsored by a third party. All opinions in this article reflect the views of the author and not of EUobserver.

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