Interpreting Social Credit System in Eight Dimensions 2 | 八个维度 解读社会信用体系 As 2020 is the last year of the five-year plan for the construction of a social credit system (SCS) under the Plan for Establishing a Social Credit System (2014– 2020) (the "Plan") issued by the State Council, 2019 has become a crucial year to achieve the goals of the Plan. Looking back, a series of policy documents and their consultation drafts that focus on top-level design and operational practices have been introduced intensively this year, proposing methodologies and roadmaps for social credit-based market monitoring modes and a governance model from multiple dimensions, such as collection and sharing of credit information, use of credit reports, joint rewards for compliance, joint sanctions on non-compliance, identification of sanctioned targets, management of joint sanction list, market and industry access prohibition, credit restoration mechanisms, credit information security and the protection of market players’ rights. In the meantime, the impact of the SCS as a new type of social governance tool for enterprises has gradually attracted a high level of attention. 3 | 八个维度 解读社会信用体系 What is SCS? • A key component of the socialist • Credit records and databases from market economic system regulatory authorities, financial Infrastruc- institutions, credit information Nature • A key component of the social governance system tures services, etc. • Connection and data sharing among credit databases • Improve the integrity awareness • Government integrity: mainly in and credit level of the whole society connection with the central and local governments and their staff Purposes • Lower transaction cost Components • Reform and optimize social • Business integrity: mainly in governance and market surveillance connection with companies and key in the context of changing responsible persons and individuals government functions • Social integrity: mainly in connection with companies and key • Compliance with laws, regulations responsible persons and individuals and rules Basic • Judicial credibility: mainly in • Performance with integrity connection with public security requirements (including commercial contracts, authorities, judicial administration employment contracts, and judicial enforcement and administrative contracts, etc.) practitioners • Publicity of illegal acts and punitive measures Incentive • Joint sanctions mechanism • Joint rewards 4 | Interpreting Social Credit System in Eight Dimensions History of the SCS Joint inter-ministerial sanction memorandum, Internet + monitoring implementation plan, 2014 — Present credit restoration management measures, measures for the management of the lists of distrusted subjects, regulations related to unified social credit code Plan for Establishing a Social Credit System (2014–2020) and Rules on Handling Credit 2014 Investigation Complaints Regulations on the Management of the Credit Information Industry, Administrative 2013 Measures for Credit Information Services The Sixth Plenary Session of the Seventeenth Central Committee of the Party proposed 2011 to put integrity construction in a prominent position Several Opinions on the Construction of a Social Credit System 2007 Established an inter-ministerial joint conference system led by the State Council for the construction of the social credit system 2003 Several Opinions on the Construction of a Social Credit System (Expired) The State Council established the Special Working Group on Establishing an Enterprise and Individual Credit System led by the People's Bank of China 2002 The 16th National Congress of the Communist Party of China proposed to "improve the social credit system of the modern market economy" The concept of making the social credit system a governance tool was proposed by the 1999 Institute of World Economics and Politics of the Chinese Academy of Social Sciences under its research project regarding establishment of a national credit management system 5 | Interpreting Social Credit System in Eight Dimensions High Risk Industries, Sectors and Persons The central and local governments have issued a series of coordinated monitoring and joint sanction memorandums from 2014 to vigorously promote management targeting issues of distrust in key industries, key sectors and key market players. • Transportation and • Petroleum and gas • Real estate Key Industries logistics • Power • Salt industry • Cultural market • Finance • Food and drugs • Housekeeping services • Insurance • Tourism • Electronic • Healthcare authentication services • Government • Statistics • Foreign economic Key Sectors procurement • Intellectual property cooperation • Social insurance (patent) • Environmental • Entry-exit inspection • Safe production protection and quarantine • Management and use of • Serious wage defaults • Charitable donations government-related funds for migrant workers • Scientific research • Domestic trade • Violation of quality laws • Accounting circulation • Violation of tax laws • Customs • Distrusted persons subject to enforcement Key Market Players • Listed companies 6 | Interpreting Social Credit System in Eight Dimensions Sanction Measures China is striving to structure a large framework of sanctions on distrusted behavior based on market-oriented, industrial and social punishment measures, under which "one non-compliance will lead to restrictions everywhere". The government will establish a blacklist system and a market Administrative regulatory exit mechanism, promote credit monitoring by category in market restrictions and sanctions supervision and public services in terms of market access, qualification recognition, administrative examination, approval and policy support, establish a credit commitment system for administrative license applicants, and conduct credit reviews on the applicants. • Combine monitoring under the principle of ‘two random selections, one public release’ with Examples: credit ratings, whereby market players with general credit risk will be inspected under regular coverage and frequency, and those with high risks of non-compliance will be subject to strict monitoring and sanctions with appropriately higher coverage and frequency • Administrative sanctions such as placing restrictions on stock offering, bidding and tendering, application for government-funded projects and entitlements to tax incentives • Ban from market and industry access for a certain period of time and also life-long market expulsion in sectors directly related to food and drugs, ecological environment, engineering quality, safe production, old-age and child care, urban safety, and other sectors that are directly related to the safety of people's lives and property • No grants of financial aid, no procurement of services, an important reference for canceling or lowering the rating of social organizations, automatic interception, automatic prompting and automatic statistics in the registration process to prevent legal representatives and persons- in-charge of heavily distrusted enterprises from being registered as legal representatives and persons-in-charge of other enterprises Develop an evaluation index system and evaluation method for Market sanctions and credit benchmarks and improve credit records and disclosure restrictions systems for distrusted persons so that they will be subject to restraints and restrictions in market transactions. • Market sanctions such as limited access to credit facilities and a ban on travel by air or high speed train Examples: • Restrain those on the lists of distrusted persons from participating in bidding for any construction projects for which a bid invitation is required by law Develop industry self-discipline rules through industry Industrial restraints and associations, which will procure their members to comply with those rules. Any non-compliant institutions or individual members sanctions will be subject to intra-industry criticism, public blaming and other sanctions based on the seriousness of their violation. The Medicine and Health Credit Network jointly established by 21 industry associations has in place a "credit publicity" unit to publicize administrative penalties, a "red and black lists" unit Examples: to publicize the red list, blacklist and close watch list determined by the associations, and a "process to determine the 'list of false and illegal advertisements in medical and pharmaceutical related areas' " to explain the process of listing Social restraints and sanctions Improve the public supervision mechanism. More transparent determinations of non-compliance and publicity of the lists; enhanced cross- Examples: regional penetration, and mutual monitoring in upstream, downstream and ecosystems. 7 | Interpreting Social Credit System in Eight Dimensions Incentive Measures to Reward for Compliance Reputation reward • Establish a good example of integrity • Promotion to society through credit websites or media Public administration • Green channel, that being the "green channel" provided by tax authorities or designated specialized personnel to help with tax-related matters • Acceptance in the absence of non-material filing documents. For example, when applying for administrative licenses to which the credit commitment system is applied, if some of the application materials are not complete but the applicant signs a written commitment to provide the missing materials within the prescribed period, the government authority should accept the application in order to accelerate the progress • Reduce the