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socialcredit.triviumchina.com [ TRIVIUM PRIMER ] Understanding China’s Social System Social Credit Special Report: Understanding China’s Credit System Publication date: September 23, 2019 A big-picture look at social credit as it applies to citizens, businesses and government Read it online at: socialcredit.triviumchina.com/what-is-social-credit 1 Table of Contents Getting started Section 5.0 Intro Big tech 43 Exec summary 3 5.1 Tech platforms and social credit 44 Introduction: Meet the SCS 4 What social credit isn’t 5 Section 6.0 Analysis 47 Section 1.0 Social credit: the big picture 7 1.1 Thinking behind the SCS 8 Credits Sources & Experts 1.2 The master database 9 1.3 The blacklisting system 12 Key experts 53 1.4 Rewards and punishments 17 Trivium research team 54 1.5 More on the SCS for companies 21 Sources 55 Section 2.0 Citizen social credit 23 2.1 The SCS in daily life 24 2.2 Adoption and public opinion 33 Section 3.0 Financial applications 35 3.1 Financial credit 36 Section 4.0 Political applications 38 4.1 Social credit and internal affairs 39 4.2 Collecting data on government 40 4.3 Rewards and punishments for 42 government INTRO: THE SOCIAL CREDIT SYSTEM · Determining which social credit and restrictions by all state agencies. regulations apply to them For example, companies that violate · Reassessing HR and vendor THE QUICK VERSION import-export laws and are subsequently vetting processes blacklisted by Customs will be penalized · Looking for advantages by the courts, the banks, environmental regulators, market regulators, and • The SCS has a secondary use: Executive summary several dozen other bodies. incentivizing good financial and civic behavior among citizens. No time? No problem. We’ve distilled this report down • Companies that have an exemplary credit records will be “redlisted”. • There is no such thing as a national to a few critical takeaways. Companies redlisted by one state social credit score for individuals. The agency will be rewarded by all state central government doesn’t issue credit agencies. Rewards include lower taxes, scores. It does, however, keep a master (especially migrant workers) • China’s social credit system is primarily a fast-tracked bureaucratic procedures, database of personal credit files, to tool for regulating corporate behavior in · Fraudulent financial activity preferential consideration during which various state agencies, banks, and the Chinese market. · Tax evasion government procurement bidding, and other groups are given access. other perks. · Import-export offenses • It consists of three main components: a • Social credit data on citizens is master database, a blacklisting system, · Violations of cyberspace laws • A company’s social credit records, primarily gathered by the government and a mechanism for punishing bad · Violations of environmental laws including blacklist and redlist departments in each person’s city of credit and rewarding good credit. / excess energy consumption information, qualifications and permits, residence. The local police, courts, tax · Endangering public health and and safety / production inspection bureau, citizen affairs office, health and • The master database is called the safety results, are openly published on a new family planning bureau, and many other National Credit Information Sharing website, called the National Enterprise bodies submit records on local residents System Social Credit Special Report: Understanding China’s Platform. It’s controlled by the central • The blacklisting system is complicated. Credit Information Publicity System. to the master database. These records government, and it stores hundreds of There are hundreds of different blacklists are then included in each citizen’s social datasets on companies and individuals. controlled by different state agencies. • The social credit of a company is credit file. About 75% of the data in this database Each agency has the power to blacklist directly tied to the personal credit of will be open to the public. companies and individuals that fall under its key personnel. If a company violates • Citizens can be blacklisted for failing to their own jurisdiction. For example, the regulations, the personal credit of comply with court-ordered judgments, • Companies and their legal Ministry of Ecology and Environment can senior management may be affected. behaving badly on planes and trains, representatives, as well as individual blacklist companies for environmental Conversely, if key personnel have poor engaging in fraud, and other violations. citizens, can be blacklisted for severely violations. The Cyberspace Affairs personal credit, this may impact the Blacklisted citizens are publicly named violating any number of existing Commission can blacklist companies for company’s success in government and shamed. operational regulations. violations of cyberspace law. The tax procurement bidding. bureau can blacklist tax evaders. • The central government is also using • The key violations that result in • Companies should prepare by: the social credit system to ensure lower blacklisting are: • Under the “Unified Rewards and · Not getting hung up on scores levels of government are compliant with Punishments” framework, being national directives, are paying their bills, · Not honoring legal obligations · Keeping a close eye on credit blacklisted by one state agency records and are meeting their policy targets. · Failing to pay employees means being subject to punishments · Actively managing credit data 3 INTRO: THE SOCIAL CREDIT SYSTEM [INTRO: MEET THE SCS] In 2014, China’s State Council The master database released a landmark policy The national database consolidates social credit data and facilitates data sharing between announcing the establishment government agencies. of a national social credit MORE ON PAGE 9 system (SCS). The initiative was designed to (both for domestic companies and foreign “promote the traditional value of companies doing business in China), integrity” and increase the negative second as a mechanism for evaluating the The blacklisting system “creditworthiness” of individuals from both consequences of dishonest a financial and behavioral perspective, and Blacklists (for bad behavior) and redlists (for good behavior. While the international third for solidifying Party control over the behavior) add an extra layer of enforcement to community is fixated on the SCS State. existing laws and regulations. as it relates to citizens, in actuality, System Social Credit Special Report: Understanding China’s MORE ON PAGE 12 the system isn’t just directed at The SCS, which is slated to be fully individuals, but rather has three operational by the end of 2020, is made up of three interconnected components: distinct and equally-important targets: citizens, businesses, and 1. A master database the Chinese government itself. 2. The blacklisting system Many have voiced concern about the system’s potential to evolve into an 3. A punishment and rewards Rewards and punishments Orwellian panopticon of social control. mechanism While that’s a valid worry, it’s also a skewed Government bodies join forces to penalize those and incomplete picture of what the SCS is The central government hopes to use these with bad credit records, and reward those with designed to do. three components in tandem to guide China good credit records. through its next phase of development. Of As we’ll see over the following pages, the course, in order to achieve such a sweeping MORE ON PAGE 17 SCS was created first and foremost as a goal, the government needs data. Lots and tool for controlling corporate behavior lots of data. 4 INTRO: THE SOCIAL CREDIT SYSTEM 1. Citizen credit scores 2. Corporate credit grades BEFORE WE GET STARTED... A few city governments are independently Companies will also get a series of scores piloting programs that use the central based on the central government’s data. social credit database to give city residents These scores will be issued by credit state a social credit score that’s only applicable agencies, industry associations, and the What social credit isn’t locally. government itself. These scores will rate the company’s service quality, legal compliance, There’s a whole lot of misinformation floating around Not all cities in China are running these and level of corporate social responsibility. scoring programs. And to make matters You can read more about this in our section about social credit, and that misinformation has given more confusing, in the places that do have on the SCS for enterprises. rise to two fundamental misunderstandings about scoring systems, scoring scales differ widely from city to city. Some cities rate on a 0-200 what the system is and how it works. These have been scale, some on a 0-1000 scale, so there’s no 3. Financial credit scores repeated so often that they’ve been widely accepted unified scoring mechanism, and scores can’t really be compared between people from Banks will also be incorporating some social as fact. So before we talk about what social credit different localities. credit data into their financial credit records. actually is, we’re going to take a minute to clear the air. In the near future, those records will be This throws a wrench in the “Black Mirror” used by credit rating agencies to issue a scenario in which everyone in China judges variety of scores, both to individuals and to each other’s human worth based on a point companies, primarily for lending purposes. value. If a citizen of Suzhou has a credit But there’s