Social credit system
The social credit system is a national credit rating and blacklist implemented by the government of the People's Republic of China. The social credit system is a record system so that businesses, individuals, and government institutions can be tracked and evaluated for trustworthiness. It is based on varying degrees of whitelisting and blacklisting. There have been a widespread misconceptions in media reports that China operates a unitary social credit "score" based on individuals' behavior, leading to punishments if the score is too low or rewards if the score is high.
The origin of the concept can be traced back to the 1980s when the Chinese government attempted to develop a personal banking and financial credit rating system, especially for rural individuals and small businesses who lacked documented records. The program first emerged in the early 2000s, inspired by the credit scoring systems in other countries. The program initiated regional trials in 2009, before launching a national pilot with eight credit scoring firms in 2014. By 2023, most private social credit initiatives had been shut down by the PBOC, as the central government has been re-centralizing the score system.
The social credit system is an extension to the existing legal and financial credit rating system in China. Managed by the National Development and Reform Commission, the People's Bank of China and the Supreme People's Court, the system was intended to standardize the credit rating function and perform financial and social assessment for businesses, government institutions, individuals and non-government organizations. The Chinese government's stated aim is to enhance trust in society with the system and regulate businesses in areas such as food safety, intellectual property, and financial fraud. Under the system, courts have an ability to impose penalties against judgment debtors, which are the primary form of restrictions imposed by the system.
History
Background
The origin of the social credit system can be traced back to the early 1990s as part of attempts to develop personal banking and financial credit rating systems in China, and was inspired by Western commercial credit systems like FICO, Equifax, and TransUnion. The credit system aims to facilitate financial assessment in rural areas, where individuals and small business entities often lacked financial documents.In 1999, businesswoman Huang Wenyun wrote a report following her negative experiences with domestic business trustworthiness and her research into credit management in the United States business environment. At the time, credit management and rating were largely unfamiliar concepts within the Chinese economy. Huang sent her report to Premier Zhu Rongji, who approved it and in August 1999 ordered the People's Bank of China to take immediate action. In September 1999, the Institute of Economics of the Chinese Academy of Social Sciences began a research project on establishing a national credit management system. Huang contributed more than RMB 300,000 to fund the research initiative and sponsored fieldwork in the United States and Europe. In the United States, the research group studied and prepared translations of 17 American credit reporting laws, including the Fair Credit Reporting Act.
In January 2000, the research group from the Chinese Academy of Social Sciences compiled their research into a text titled National Credit Management System. Among these academics was Lin Junyue, who became an important intellectual figure in the development of social credit. Premier Zhu approved the text and instructed government figures from ten ministries and commissions to begin studying the creation of a social credit management system. In late January 2000, the State Council released an essay by Zhu in which Zhu stated that China must "vigorously rectify social credit." In March 2000, Zhu delivered the government's work report to the National People's Congress, in which Zhu talked about the need to rectify social credit in the context of supervision of financial institutions, fraud, tax evasion, and debt repayments.
2002 to 2014
In 2002, the construction of a social credit system was formally announced during the 16th National Congress of the Chinese Communist Party. The central government had not developed a specific vision for what a finished system might look like. Local governments were to develop pilot initiatives which could then guide the larger policy approach.In 2003, the State Council stated that the basic framework and operational mechanisms for a social credit should be established within five years. Most of the goals in this period were missed, although the financial aspects of social credit developed much further than non-financial aspects.
Among the financial aspects of social credit which developed quickly was credit reporting. In March 2006, the People's Bank of China established the Credit Reference Center, which has information regarding financial credit worthiness and has established basic financial records for 990 million Chinese citizens as of 2019. Its records relate only to finance and does not have any blacklist mechanism.
In 2007, the Inter-Ministerial Joint Conference on the Establishment of the SCS was established, replacing the leading small group which had previously been the top policy organ for social credit issues. The initial blueprints of the social credit system were drafted in 2007 by government bodies. The social credit system also attempts to solve the moral vacuum problem, insufficient market supervision and income inequality generated by the rapid economic and social changes since Chinese economic reform in 1978. As a result of these problems, trust issues emerged in Chinese society such as food safety scandals, labor law violations, intellectual property thefts and corruption. Among the purposes of social credit is promotion and moral education regarding personal integrity and honesty. The policy of the social credit system traces its origin from both policing and work management practices.
The government of modern China has maintained systems of paper records on individuals and households such as the dàng'àn and hùkǒu which officials might refer to, but these systems do not provide the same degree and rapidity of feedback and consequences for Chinese citizens as the integrated electronic system because of the much greater difficulty of aggregating paper records for rapid, robust analysis.
The social credit system also originated from grid-style social management, a policing strategy first implemented in select locations from 2001 and 2002 in specific locations across mainland China. In 2002, the Jiang administration proposed a social credit system as part of the promotion of a "unified, open, competitive, and orderly modern market system." In its first phase, grid-style policing was a system for more effective communication between public security bureaus. Within a few years, the grid system was adapted for use in distributing social services. Grid management provided the authorities not only with greater situational awareness on the group level, but also enhanced the tracking and monitoring of individuals.
One focus of social credit is to build judicial credibility through more effective enforcement of court orders. In 2013, the Supreme People's Court of China started a blacklist of debtors with roughly 32,000 names. The list has since been described as a first step towards a national Social Credit System by state-owned media. The SPC's blacklist is composed of Chinese citizens and companies that refuse to comply with court orders despite having the ability to do so. It is hosted online at the Supreme People's Court judgment defaulter blacklist portal, and the information is shared with Credit China and the National Enterprise Credit Information Publicity System. The SPC also began working with private companies. For example, Sesame Credit began deducting credit points from people who defaulted on court fines.
Although there was institutional enthusiasm for a social credit system during the 2004 to 2014 period, implementation was adversely impacted by planning difficulties stemming from the relationship between credit reporting initiatives and regulatory objectives. A lack of central coordination resulted in institutional bottlenecks.
2014 to 2020
The State Council sought to accelerate the development of social credit and, in 2014, issued the Planning Outline for the Construction of a Social Credit System . The Planning Outline was a major step in China's approach to developing a social credit system; before the 2014 Planning Outline, there had been only one high-level policy document. Since the Planning Outline, the State Council has issued new guidance annually.The Planning Outline focused primarily on economic activity in commerce, government affairs, social integrity, and judicial credibility. It set broad goals intended to be reached by 2020:
- a reward and punishment mechanism should be fully effective,
- a basic credit investigation that covers the whole of society should be established,
- credit oversight mechanisms should be established,
- credit service markets should be performing well, and
- fundamental social credit laws, regulations, and standards should be established.
In 2016, the State Council encouraged market entities to provide preferential treatment to those with outstanding financial credit records and differentiated services to those with seriously untrustworthy records.
The Chinese central government originally considered having the social credit system be run by a private firm, but by 2017, it acknowledged the need for third-party administration. However, no licenses to private companies were granted. By mid-2017, the Chinese government had decided that none of the pilot programs would receive authorization to be official credit reporting systems. The reasons include conflict of interest, the remaining control of the government, as well as the lack of cooperation in data sharing among the firms that participate in the development. However, the social credit system's operation by a seemingly external association, such as a formal collaboration between private firms, has not been ruled out yet. In November 2017, Sesame Credit denied that Sesame Credit data was shared with the Chinese government. In 2017, the People's Bank of China issued a jointly owned license to Baihang Credit valid for three years. Baihang Credit is co-owned by the National Internet Finance Association and the eight other companies, allowing the state to maintain control and oversee the creation of new commercial pilot programs. As of mid-2018, only pilot schemes had been tested without any official implementation.
Private companies have also signed contracts with provincial governments to set up the basic infrastructure for the social credit system at the provincial level. As of March 2017, 137 commercial credit reporting companies were active on the Chinese market. As part of the development of the social credit system, the Chinese government has been monitoring the progress of third-party Chinese credit rating systems. Ultimately, Chinese government dropped the support for privately developed credit rating system, and these pilot projects remained as corporate loyalty programs.
In December 2017 the National Development and Reform Commission and People's Bank of China selected "model cities" that demonstrated the steps needed to make a functional and efficient implementation of the social credit system. Among them are: Hangzhou, Nanjing, Xiamen, Chengdu, Suzhou, Suqian, Huizhou, Wenzhou, Weihai, Weifang, Yiwu and Rongcheng. These pilots were deemed successful in their handling of "blacklists and 'redlists'", their creation of "credit sharing platforms" and their "data sharing efforts with the other cities".
By 2018, some restrictions had been placed on citizens which state-owned media described as the first step toward creating a nationwide social credit system.
According to Antonia Hmaidi of the think thank Mercator Institute for China Studies, the local government social credit system experiments are focused more on the construction of transparent rule-based systems, in contrast with the rating systems used in the commercial pilots. Citizens often begin with an initial score, to which points are added or deducted depending on their actions. The specific number of points for each action are often listed in publicly available catalogs. Cities also experimented with a multi-level system, in which districts decide on scorekeepers who are responsible for reporting scores to higher-ups. Some experiments also allowed citizens to appeal the scores they were attributed.
In 2019, the central government expressed "unhappiness" at the pilot cities that were experimenting with social credit scores and issued guidelines that no citizens can be punished for having low scores, and instead punishment can only be for legally defined crimes and civil infractions, consequently leading to pilot cities either changing their programs to be encouragement-only or not materializing at all. According to a February 2022 report by MERICS, "In reality, the SoCS is not the techno-dystopian nightmare we fear: it is lowly digitalized, highly fragmented, and primarily focuses on businesses. Most importantly, such a score simply does not exist."
In July 2019, an NDRC spokesperson stated that at a press conference that "personal credit scores can be combined with incentives for trustworthiness, but cannot be used for punishments". The Hong Kong Government stated in July 2019 that claims that the social credit system will be rolled out in Hong Kong are "totally unfounded" and stated that the system will not be implemented there.
In 2019, high-level NDRC officials stated that over 10% of people blacklisted for their commission of tax fraud had repaid their taxes, that the bad credit rate had decreased by 22.7%, and that the proportion of companies blacklisted had decreased. In the view of these officials, these were "remarkable results."