I still remember my Economics textbook when I was a high school student in China 7 years ago. In a chapter about China’s market economy reform, the textbook told us that building an economic credit system is one of the urgent imperatives for constructing a modernized market institution. This sounded very reasonable to us at that time, but after 7 years, when this credit system is finally taking shape, things are becoming more complex than we expected.
In recent years, the Social Credit System (SCS) has become much more extensive and sophisticated than the early initiatives, and news stories about this system outside China often depict the SCS as the infrastructure for an Orwellian digital dystopia. However, many reports oversimplify and decontextualize the emergence and structure of SCS and are sharply contradictory to what most Chinese people feel about this system (Kostka 2019). This article seeks to clarify the current structure and implementation of SCS.
A brief history of SCS
Let’s start by going back to the early 2000s, when China had just joined the World Trade Organization (WTO). At that time, basic market norms and institutions were in a nascent and incomplete stage, and people suffered greatly from the lack of market rules and regulations. Pervasive tax evasions, fraud, fake products, and unfulfilled contracts were seriously deteriorating citizen’s trust in the market system. Some academics and officials started to consider that credit systems like Equifax and TransUnion in the US would be useful to fix these problems, because these credit systems can record individuals’ and companies’ market conducts and evaluate their credits, which increases the costs of uncreditworthy market behaviors.
Finally, during 2006 and 2007, the discussions around credit system were translated into policy-making. “Building a social credit system” was incorporated into the 11th five-year plan, and specific blueprints were also issued (Office of State Council 2007). Up to then, the plan for a social credit system had always been focusing on the economic aspects, aiming at establishing market order, preventing economic crimes, and maintaining financial stability. After 2007, experiments and pilot SCS projects were launched in several cities. At this time, the Chinese government also encountered a rising social governance crisis and demands for a new and efficient way of social management. In such circumstances, some cities also began to expand credit evaluations to citizens’ social conduct to tackle social problems.
Based on the experiences of early pilots and experiments, the 2014 SCS plan was issued (State Council 2014). It set two foundations for SCS. First, it stipulated the overall framework and dimensions of social credit information collection and evaluation: based on the experiences of previous local pilots, this new plan went beyond the economic aspects of credit and incorporated broader goals of enhancing social harmony and promoting discipline and transparency of the political and legal systems. Second, it also incorporated the Joint Punishment System as an enforcement mechanism for SCS. Subsequently, SCS entered the stage of full implementation and multiple actors including the Central Bank, various Ministerial areas in central government, local governments, and private companies started to develop their own credit systems based on the framework provided by the 2014 plan.
The current fragmented structure of SCS
The current status of SCS is much more complex than most popular media stories have portrayed. SCS is not a single monolithic surveillance and rating system controlled by the central government, but rather a set of diverse and fragmented systems and policies established by various central and local government departments, as well as private companies, and these systems “share a basic set of objectives, operational frameworks and policy language” (Creemers 2018, 25). Chorzempa, Triolo, and Sacks categorized these credit systems into three types: private SCS represented by Alibaba’s Sesame credit, People’s Bank of China credit reference system, and local and sectoral SCSs. Besides, they also compared the recent Chinese SCS to credit services in the US (Chorzempa et al. 2018, 6).
1) People’s Bank of China credit reference system
As the backbone of SCS, the People’s Bank credit reference system solely aims at improving creditworthiness in the marketplace. It records individuals’ and companies’ market conducts and financial credit information. Currently, this bank credit reference database holds records for the financial credit information of 990 million citizens and 25.9 million companies (Wu 2019).
In this credit system, citizens and companies are given detailed financial credit reports, and these reports include information related to personal assets, credit cards, mortgages, loan guarantees, public criminal records, etc. There are no scores or rankings in these reports; rather, the evaluation result is binary: creditworthy or not. Citizens with severely bad credit records will be listed in the Joint Punishment System, and will be restricted from entering certain market sectors, obtaining public rewards, acquiring real estate, and luxury consumption, such as first-class flight seats and high speed trains (Creemers 2018, 15).
2) Local and sectoral SCSs
Local governments and some central government departments also developed relevant regulations and city-level credit systems in their own jurisdictions. By February 2019, 51 central government departments also issued memorandums aiming at restricting uncreditworthy behaviors in their own jurisdictions, such as academic misconduct, intellectual property infringement, medical fraud, transportation fare evasion and accountant fraud. Moreover, dozens of cities also developed their own city level personal social credit systems. In these local level credit systems, citizens’ social credit records mainly comprise information about their financial status, market conducts, judicial records, personal honors, public services, and —usually vaguely defined— social management records (Zhang 2019).
Most controversies are associated with these local SCS plans. Due to the lack of a clear and consistent legal definition of social credit and its boundaries, many local officials use SCS as a convenient tool for redundant and extensive social management (Zhang 2019). For instance, some cities like Beijing, Hefei, and Xi’an incorporated minor misconducts into their own personal social credit evaluation criteria, such as parking violations, waste misclassification, spreading rumors online, and eating or shouting in subways. Besides, local governments’ governance abilities also affect the layout of local SCS: in smaller cities with lower governance capabilities, local SCSs are more likely to be problematic and implement scoring systems without coherent logic which threaten individual autonomy (Dai 2018, 39). In contrast, in well-developed cities with higher social governance capabilities, local SCSs are usually more prudently designed and less restrictive. For instance, in Shanghai no punishments exist for poor social credit records, only rewards and benefits for people with good social credit records (Dai 2018, 30).
3) Private commercial SCSs
Private internet companies have also participated in the building of commercial credit systems, and the most successful one is undoubtedly Alibaba’s Sesame credit. In these private commercial SCSs, users are given credit scores mainly based on their consumption behaviors and online financial records. People with high scores will be given discounts or more convenient services on these online platforms, while low scores do not lead to punishments.
In the beginning, Sesame was not the only player licensed to provide such service, and 7 other companies were also allowed to launch their own private credit systems. However, in those early trials, many private credit systems incorporated irrelevant, problematic and even discriminative online behaviors such as social media speech, online shopping habits, or sleeping time into their personal credit evaluation algorithms. In February 2018, due to their deficiencies in data rights protection and security issues, 7 private credit systems were interrupted by the People's Bank of China (Hornby et al. 2018), and only Sesame credit was left standing. The current scoring mechanism of Sesame only focuses on online consumption and financial activities, and users’ online speech or other political conducts are not included. Besides, Sesame credit’s general manager Hu Tao denied Sesame’s contract with the governmental social credit system (Hu 2017).
In summary, the Chinese SCS is not a single monolithic system; rather, it entails many sub-level systems in different cities and sectors with similar but sometimes discordant goals, principles and modalities. However, SCS is still in its formative phase and its future depends on the interplay of various driving forces both inside and outside the government system. In the next article, I will rethink current risks and present recent domestic contentions concerning SCS in China.
Creemers, Rogier. 2018. “China’s Social Credit System: An Evolving Practice of Control”. Last modified May 22, 2018. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3175792.
Dai, Xin. 2018. “Toward a Reputation State: The Social Credit System Project of China”. Working Paper. Last modified June 10, 2018. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3193577.
Office of State Council. 2007. “国务院办公厅关于社会信用体系建设的若干意见” [Notice concerning the Building of a Social Credit System]. Last modified April 2, 2007. http://www.gov.cn/zwgk/2007-04/02/content_569314.html.
State Council. 2014. "社会信用体系建设规划纲要” [Planning Outline for the Construction of a Social Credit System (2014-2020)]." Last modified: 14 June 2014. https://chinacopyrightandmedia.wordpress.com/2014/06/14/planning-outline-for-theconstruction-of-a-social-credit-system-2014-2020/.
Chorzempa, Martin, Paul Triolo, and Samm Sacks. 2018. Policy Brief 18-14: China’s Social Credit System: A Mark of Progress or a Threat to Privacy? Last modified: June 2018. https://piie.com/publications/policy-briefs/chinas-social-credit-system-mark-progress-or-threat-privacy.
Zhang, Yuzhe. 2019. 社会信用分遍地开花，谁在滥用谁受伤害 [Social Credit Scores All Over the Country, Who’s Abusing it and Who’s Getting Hurt?]. Last modified April 1, 2019 http://weekly.caixin.com/2019-04-04/101398729.html?p0#page2.
Hornby, Lucy, Sherry Fei Ju, and Louise Lucas. 2018. China cracks down on tech credit scoring. Last modified February 4, 2018. https://www.ft.com/content/f23e0cb2-07ec-11e8-9650-9c0ad2d7c5b5.
Hu, Tao. 2017. “Zhima Credit does not share user scores or data”. Last modified 15 November, 2017. https://www.ft.com/content/ec4a2a46-c577-11e7-a1d2-6786f39ef675.
Wu, Yu. 2019. “征信系统持续更新中，你的“经济身份证”将有哪些变化？” [Credit Reference System Keeps Upgrading, What are the New Changes of Your “Economic ID Card?”] last modified April 22, 2019. http://www.xinhuanet.com/2019-04/22/c_1124401147.htm