The year 2020 is poised to be critical for China’s corporate social
The year 2020 is poised to be critical for China’s corporate social credit system (SCS). The umbrella policy driving the system’s implementation expires at the end of 2020, and updated policies outlining the next phase of the system’s development are expected to hit the books around the same time.
Since we stand at such a critical juncture, it’s a good time to ask some critical questions, namely: where is the system today, and more importantly, where is it going?
[The NDRC] put the total number of collected credit information records at 37 billion, with 156 million administrative licensing records and 20.6 million administrative penalty records available on the Credit China website.
The current incarnation of the corporate SCS has come a long way since development began in earnest back in 2014.
In November this year, Meng Wei, deputy director of the National Development and Reform Commission (NDRC) policy research office, put the total number of collected credit information records at 37 billion, with 156 million administrative licensing records and 20.6 million administrative penalty records available on the Credit China website. By some estimates, over two-thirds of China’s regional governments have released—or are in the process of releasing—local social credit initiatives.
Those are some big numbers, but they actually don’t tell us much about the situation on the ground. The fact is that, though progress has been steady, the piecemeal nature of the roll-out has given rise to a few sticky issues that have yet to be solved.
Uneven implementation across industries
While it is clear that the SCS will eventually have ramifications for every company doing business in China, policymakers have placed a special focus on implementation in industries they feel are most in need of regulation.
This has been particularly evident in the roll-out of Comprehensive Public Credit Grades, the central government’s new four-tier rating system for enterprises.
In September this year, the NDRC announced the completion of credit evaluations on 33 million Chinese market entities. To put that into perspective, there were 34.7 million total companies registered in China in 2018, so the evaluation covers most registered companies in the market. But only a tiny portion of those results have been made public.
- Only some grades on enterprises in the travel, transport, and energy sectors have been issued (see an example).
- Only the most extreme ratings—“excellent” (优) and “bad” (差)—have been listed. No listings were released for companies receiving “good” (良) or “fair” (中) grades.
- These ratings have not been incorporated into any of the searchable, centralized platforms, but published in Excel spreadsheets.
- There has been no word on whether or not these grades will eventually be added to, and viewable via, the main public portals.
Enormous amounts of data dispersion
The promise of social credit was centralized, transparent data on China’s market entities. Two main platforms were created to serve credit data to the general public: the Credit China website and the National Enterprise Credit Information Publicity System (NECIPS).
But data sharing between the two is patchy at best, with records that appear on one often being unsearchable on the other.
Making matters worse, several state agencies host their own credit data platforms with equally poor interconnectivity, haphazardly transferring data from and sharing data with NECIPS, Credit China, and each other.
Boundaries of the system aren’t clearly defined
Social credit policy at the national level has encouraged provincial and city governments to extend the system by developing blacklists, rewards, and punishments schemes for their own jurisdictions. But policymakers are very much aware of social credit’s potential to exceed its own mandate. Deputy Director Meng Wei stressed that social credit must have a clearly defined legal basis, and outlined the “Three Prevents”:
- Preventing credit record data collection from expanding beyond reasonable and appropriate boundaries
- Preventing the unauthorized creation of blacklists and related punishments
- Preventing the unauthorized or illegal applications of the credit system
The fix? A landmark social credit law is coming.
Recognizing the need for foundational legislation, the National People’s Congress put the creation of a social credit law on the to-do list in November this year.
Though there is no word on a release date, the law is expected to tackle the problems that have arisen with implementation over the past half-decade, specifically:
- What constitutes social credit data and what doesn’t?
- How can that data be collected, stored, and used, and by whom?
- Legally, what punishments and incentives can be offered under the system?
- What are the rights of enterprises?
If some of the legislative initiatives coming out at the provincial level are any indication, the law may also define punishments for abuse of the system. The Henan Provincial Legislative Affairs Committee, for example, has added a clause to their regional policy outlining penalties for those who falsify credit records, violate data collection and distribution statutes, and otherwise misuse the SCS.
Where we are going: trends to watch in 2020
More clarity on Comprehensive Public Credit Grades
The concern surrounding Comprehensive Public Credit Grades mostly stems from the lack of clarity in terms of how these grades will be applied. We do know that:
- Having a low comprehensive credit grade will not trigger social credit’s unified punishments mechanism. Only being blacklisted will trigger unified punishments.
- Having a low grade will not result in a company being blacklisted. It’s actually the opposite—being blacklisted will lower a companies’ grade.
- The grades will then be used for “differential regulation.” In other words, companies with poor grades will receive more regulatory attention.
That still leaves us with big questions:
- What are the metrics that determine Comprehensive Credit Grades?
- How are those metrics weighted?
- Will the metrics that drive these grades be standardized at the national level?
- Will grades be used as a public-facing business quality system, or will they be primarily for regulatory use?
We expect to get more details on this front in the next 12 months.
More social credit platforms will come online and centralize
An increasing number of state agencies are building out their own public-facing social credit management portals. Some of these have been announced but haven’t been launched, others are online but aren’t fully populated. An increasing number of these platforms go live as various state agencies get their SCS acts together. A few examples of what is coming down the pike:
Social security: In September this year, the Ministry of Human Resources and Social Security (MoHRSS) outlined plans for the creation of a social security management platform, which will include social credit elements.
According to the project timeline, the platform is slated to be “basically completed” by the end of 2020, with technical upgrades running through 2022.
Construction: The Ministry of Housing and Urban Rural Development credit platform has been underway since at least 2016, and though it’s online, it’s still struggling in terms of integration with the wider CSCS ecosystem.
The construction industry is going to take a double hit with the impending launch of the Environment Impact Assessment credit platform, detailed in a November 2019 policy, which the Ministry of Ecology and Environment (MEE) will use to track how closely construction units are complying with reporting guidelines.
Travel and tourism: The Ministry of Culture and Tourism aims to further develop its newer tour guide and travel agent credit search portal, which currently contains basic company registration data, but hasn’t begun to accurately pull information from the wider corporate SCS data sets.
The big question: Are these disparate platforms going to feed into a single, usable master platform? Or are compliance departments looking at a decade of having 20 browser tabs open at all times?
The growth of regional credit cooperatives
The profusion of grading systems has spurred some local governments to form regional credit cooperatives—arrangements under which cities and provinces agree to honor each other’s grading systems.
In October, Liaoning, Inner Mongolia, Jilin, and Heilongjiang banded together to form “Credit Dongbei”, a banner under which the regional governments will:
“…establish a relatively consistent credit system and legislative mechanism, mutually recognize and exchange credit evaluation standards and credit rating results, … and realize the interconnection and exchange of their credit information platforms ….”
Dongbei hasn’t been the only area looking to inject a little uniformity. In August, Nanjing, Hangzhou, Wuhan, Suzhou, and Zhengzhou signed a similar agreement to mutually recognize city-based personal social credit scores. While this does not cover corporate social credit, it does highlight a trend towards cross-provincial credit data unification.
The big question: Will we see an increasing number of regional cooperatives, and if so, will that speed up the eventual emergence of a national agreement?
More apps drawing on corporate SCS data
As tech players in both the private and public sectors cotton on to the availability of public-facing NECIPS datasets, expect an increasing number of web and mobile applications to utilize the central government’s public records in a variety of ways.
In the public sector, the city government of Hohhot, for example, has recently announced plans to release a social credit check app for local domestic service companies. In Yiwu, home to the world’s largest wholesale market, a new app allows buyers to check the social credit records of the market’s 75,000 vendors.
A good example from the private sector is ground transport app Yunmanman, which has built an onboard credit rating system for both drivers and shippers. Yunmanman has received significant support from the NDRC, indicating it may incorporate NECIPS data as part of this system.
What is not happening in 2020
Standing still and “waiting to see how the system develops” is the wrong move.
There is a widespread misconception that 2020 is the year in which some kind of master switch will be flipped, and the SCS will suddenly come to life—in reality, the system is already very much alive, and these regulations have legs.
That means that standing still and “waiting to see how the system develops” is the wrong move. Companies need to be proactive and begin creating an internal mechanism for tracking the system’s growth and impact as it expands.
Kendra Schaefer is the Head of Digital Research at Trivium China. She began her career building cross-cultural interfaces for foreign firms entering the China market, and later trained in web usability with US-based user experience consultancy Truematter. She has consulted on over 150 digital projects for both SMEs and multinationals, and now runs Trivium’s social credit project.