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The process:

Fast implementation of a mammoth project

4.1 The process: fast implementation of a mammoth project

The implementation of China’s Social Credit System faces two major obstacles: bureaucratic barriers and technological feasibility. Nevertheless, compared to other projects and reforms, prioritized under the leadership of Xi Jinping and Li Keqiang, the Social Credit System is by far one of the most dynamic and fast moving.

The project has been prepared over a long period of time: In the late 1990s, Lin Junyue’s working group at the Institute of World Economics and Politics of the Chinese Academy of Sciences developed the basic concepts and mechanisms of the system. Lin himself is often referred to as the pioneer of the “Theory of the Social Credit System”. He was educated and started his career in the U.S. as an expert on information retrieval and credit ratings. Based on these experiences, Lin and his colleagues advocated a unique Chinese approach to credit ratings. Numerous pilot projects were already started in the early 2000s.4

 

4.2 Dynamic start: concerted action under top-leadership supervision

As a showcase of “top-level design” under central coordination, implementation has been progressing quickly since the release of the central government’s “Plan for Establishing a Social Credit System” (社会信用体系建设规划纲要) in 2014.5 The schedule for implementation is tight: Beijing wants to have the system up and running by 2020. The project is coordinated by the influential Central Leading Small Group for Comprehensively Deepening Reforms, headed by party and state leader Xi himself.6 The Leading Small Group has assigned the National Development and Reform Commission (NDRC) to lead the implementation process in close cooperation with the People’s Bank of China (PBOC).7 Since August 2015, both have authorized a total number of 43 pilot cities and city districts to implement the Social Credit System and experiment with related mechanisms. Another testing ground is the afore-mentioned FTZs.

 

4.3 Work in progress: establishing a hub for sharing and collecting data

The data backbone of the Social Credit System is the so called "National Credit Information Sharing Platform" (全国信用信息共享平台). The platform has been up and running since October 2015. Its purpose is to collect and share data from local and central governments, from sectoral Social Credit Systems and also, in the future, from commercial credit rating companies.8 During the past two years, visible progress has been made with regard to the integration of data from multiple sources on the National Sharing Platform.

Currently, the platform collects mainly government data and includes a total number of 400 datasets by more than 30 central ministries and governmental agencies, who rely on the input of provincial and city-level government data.9 More than 80 per cent of the integrated data covers information on companies – with most data being supplied by the two ministries responsible for economic development, namely the NDRC and the Ministry of Industry and Information Technology (MIIT). As of today, approximately 75 per cent of the government data collected in the Sharing Platform is publicly available (公开) and, in case of company data, accessible to a significant extent online via the National Enterprise Credit Information Publicity System (全国企业信用信息公示系统).10 Only 25 per cent is qualified as data for limited sharing (有限共享) or inter-government sharing (政务共享). From a technical perspective, the sharing platform can be searched by a company’s name as well as by a company’s Social Credit Number (统一社会信用代码).11

As of 2016, the company-related information collected on the National Credit Information Sharing Platform included general data on companies, like registered capital, legal representatives, investment activities, annual reports, government-approved projects, criminal records and the like. Additionally, it integrates a broad set of data on companies’ compliance with government regulations as well as data concerning public welfare and security, like information on product safety, environmental protection, and work safety. Furthermore, it includes information on unfair business practices, like intellectual property rights violations or tax fraud. The list of integrated data also reveals that much of the collected data is presumably still paper-based and relies on face-to-face inspections by government agencies. Much still needs to be done if the government wants to automate data collection and integrate real-time monitoring systems.

4.4 Data evaluation: multiple rating services involved

While many details on the collection and sharing of data under the Social Credit System are available, systematic information on the use and evaluation of the collected data is rare. As mentioned, the Social Credit System will presumably not generate one single credit score for every company. Instead, several rating systems with varying assessment criteria currently exist in parallel, to be employed for different purposes. The exact algorithms and criteria generating the different credit ratings remain unknown.

Several different entities will process the company data collected by the Social Credit System, evaluate them, and generate social credit ratings. They include the two government credit information platforms, the National Enterprise Credit Information Publicity System and the Credit China Platform, as well as the Credit Reference Centre of the PBOC, commercial credit rating services, and sectoral credit rating systems. The main characteristics of these social credit rating entities are as follows:

  • The government credit information platforms, the National Enterprise Credit Information Publicity System, and the Credit China Platform (信用中国网)12 provide information on blacklisted companies as well as an overview of companies’ positive and negative credit records. The implementation is still far from a sophisticated approach to credit ratings, but rather a simple register of a company’s positive and negative records.  Existing blacklists include, for example, lists of thousands of companies not allowed to issue bonds or to invest in publicly traded companies. Ministries and other government agencies are supposed to use the available information during approval or bidding processes.13
  • The Credit Reference Center of the PBOC, established in 2004, is supposed to become an important credit rating authority under the Social Credit System.14 The center’s Financial Credit Information Database (金融信用信息基础数据库) is a main data provider for the Social Credit System and might also use data from the National Credit Information Sharing Platform to generate its company credit scores. The PBOC ratings are already being used by government agencies in bidding processes and other administrative decisions. It can be expected that the Credit Reference Center, or a newly created rating center under the PBOC, will take a vital role in rating companies under the Social Credit System in the future.
  • Commercial credit rating services are a substantial part of the Social Credit System. The idea of the government is to share its own data with these commercial services and to receive their data on companies’ trustworthiness in return. A broad mix of companies are currently accessing the market with their own company rating services, including Alibaba and JD (major e-commerce companies), Baidu (China’s Google), Wanda (commercial property company and cinema chain operator) as well as China Telecom (state-owned telecommunication company), Fosun (investment company) and some ministry-backed rating companies. As of March 2017, 137 commercial credit reporting companies were active on the Chinese market, most based in Beijing or Shanghai.15 Whether data exchange between these companies and the National Credit Information Sharing Platform already exists, remains an open question for the time being. Some companies reportedly signed contracts for sharing credit information with the state’s data platform.16

In focus industries targeted by the Social Credit System, industry associations or ministries currently work on the implementation of sectoral credit rating systems. This includes the automotive, energy, finance, and e-commerce industries. The ratings generated by these sectoral systems will presumably be integrated into the National Credit Information Sharing Platform.

4.5 Moving ahead: smooth implementation is unlikely

One of the key challenges of the Social Credit System’s implementation is the systematic integration of data collected by private companies. The project’s success depends heavily on their willingness to share their data and on the government’s capacity to enforce data sharing. The business case might be attractive in some cases due to the possibility of gaining access to government data. On the other hand, companies like Alibaba, JD, or Baidu might refuse to share their proprietary data, as it is their most valuable product.

Technological obstacles also remain high: database infrastructure and the ability of the various government and commercial systems to enhance data quality and to evaluate massive amounts of real-time data pose huge challenges for implementation. Compared to many other countries, China is well prepared to overcome those challenges. It does not only have the political will and assertiveness but also the financial resources, and it is already strong in decisive technologies, such as big data or surveillance systems.

Bureaucratic processes may also hamper progress. Reliable data provision by province and city-level governments as well as by companies is not a matter of course. There is likely to be resistance when it comes to handing over data. And even real-time monitoring systems are not safe from data fraud: a recent case of real-time emissions data being faked by companies shows that China still has a long way to go in building a reliable database for the Social Credit System.17

The Social Credit System will presumably not show its full potential impact on companies by 2020. However, the government’s commitment to the project is unquestionable. China will invest all efforts into implementing the basic structure and mechanisms as soon as possible.