October 24, 2019
China’s Corporate Social Credit System
China’s construction of a nationwide “social credit system”
market. The network’s overarching structure consists of
has been identified as a major concern by both the
three components:
executive branch and some Members of Congress because
Data Aggregation. A firm’s social credit profile is the
of the broad controls such a system is likely to give the
aggregate of potentially hundreds of data points compiled
Chinese government over U.S. citizens and companies
by dozens of government entities. In October 2015, the
operating in China. Recent reports of Chinese officials
National Development and Reform Commission (NDRC),
invoking the social credit system to pressure U.S. firms to
China’s powerful economic planning agency, launched the
take positions that align with Beijing’s interests raise
National Credit Information Sharing Platform (NCISP).
questions for Congress about how to respond to the
The NCISP, operated by the NDRC in cooperation with 45
potential threat the system may pose to U.S. commercial
other government ministries, serves as the data “backbone”
actors in China.
of the Corporate SCS, integrating all national and local-
After several pilot programs, China began constructing a
level corporate regulatory data. To structure the database,
nationwide social credit system in 2014, guided by a
all companies registered in China have been assigned a
document issued by China’s cabinet, the State Council,
Unified Social Credit Code—a common identifier used
Planning Outline for the Construction of a Social Credit
across all datasets linked to the Corporate SCS.
System (2014-2020). The plan describes the system as
Evaluation. As government departments collect
necessary to build “trust” in the marketplace and broader
information on firms, they create “blacklists” of firms that
society, and establishes a 2020 implementation deadline.
are found to have violated regulations or engaged in illicit
Since the plan was published, the social credit system has
financial behavior. National and local government
developed into two connected but distinct systems: a system
departments have a wide mandate to create blacklists for
for monitoring individual behavior, still in early pilot
violations that fall under their jurisdiction. Consequently,
stages, and a more robust system for monitoring corporate
there are hundreds of official blacklists covering everything
behavior: the Corporate Social Credit System (SCS).
from severe offenses, such as tax evasion and falsifying
emissions data, to minor offenses such as failing to file a
Table 1. Expanded Scope of China’s Corporate SCS,
change of address. Some departments also publish
Side-by-Side with U.S. Credit Bureaus
laudatory “redlists” of firms with exemplary records, such
China’s Corporate
Credit Bureaus in
as the State Taxation Administration (STA) “Grade A
Social Credit System
the United States
Taxpayer List.” The National Enterprise Credit Information
Publicity System (NECIPS), a public online database run
Objective
Strengthen regulatory
Evaluate credit risk
by the State Administration for Market Regulation
enforcement
(SAMR), records each time a firm is added to or removed
Institutions
NDRC, SAMR, local
Equifax, TransUnion,
from a blacklist or redlist. Firms placed on multiple
government entities; some
Experian, Innovis
blacklists or that commit particularly serious offenses can
third-party private firms
be added to SAMR’s forthcoming “heavily distrusted
Targets
Firms, local governments, and
Individuals and some
entities list”—the closest analogue to a national blacklist.
individuals
firms
Joint System of Punishments and Rewards. The primary
enforcement mechanism of the Corporate SCS is a “joint
Data
Data col ected from firms and
Public records and
system of punishments and rewards,” a set of legal
Collection
public records; stored
financial information
central y
cooperation agreements by which government agencies
Rating
Various, non-standardized
Single, standardized
enforce each other’s blacklists. Under this framework, a
ratings; al ratings made public
score (FICO); score
firm blacklisted by the STA for tax offenses can be subject
not public
to customs penalties and more frequent financial audits
Outcomes
Blacklisting; joint system of
Limited access to
based on cooperation agreements between the STA and
punishments and rewards
credit, housing, and
China’s customs and financial authorities. Firms on the
potential y
STA’s “Grade A Taxpayer” redlist, on the other hand, are
employment
not only eligible for expedited and less costly tax filings,
Source: CRS, based on State Council and NDRC Social Credit
but are also eligible for other benefits, such as customs fee
Documents; U.S. Consumer Financial Protection Bureau.
waivers and low-interest loans. The system is designed, in
the words of President Xi Jinping, “to make everything
What is China’s Corporate Social Credit
convenient for the trustworthy, and ensure the
System?
untrustworthy cannot move a single step.”
The Corporate SCS is currently a network of initiatives
operated by state and private actors at the national and local
How is the System Being Implemented?
levels, connected by shared data platforms and a common
Although much remains to be done and data sharing gaps
goal of regulating corporate behavior in the Chinese
persist, reports indicate that China’s Corporate SCS is
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China’s Corporate Social Credit System
moving beyond its pilot stages and is on track for at least
nominally more transparent regulatory regime. Certain
partial implementation in 2020. Many laws passed and
provisions and rating criteria, however, could be used to
regulations issued since 2014 include clauses stating that
discriminate against multinational firms, including for
non-compliance will be recorded in the Corporate SCS. In
political purposes. For example, the Civil Aviation
July 2019, the State Council issued Guiding Opinions on
Administration of China pressured multiple international
Accelerating the Building of the Social Credit System,
airlines in early 2018 to change their websites’ descriptions
which urges government agencies to “fully employ next-
of Taiwan, stating that failure to comply would be recorded
generation information technologies such as big data and
in each airline’s social credit records. Additionally,
artificial intelligence to achieve comprehensive credit
SAMR’s “heavily distrusted entities list” includes
monitoring.”
provisions that might be used to target U.S. firms. The list
will include, for example, firms that “threaten national and
China’s central government has only issued general
public interest” or “infringe on the rights and interests of
guidelines for the buildout of the Corporate SCS.
consumers.” Two U.S. companies—FedEx and Flex Ltd.—
Consequently, no single standardized national social credit
were accused of the latter, following supply disputes with
score is currently assigned to companies. Instead, various
Chinese telecommunications firm Huawei in mid-2019. The
national and local government entities, as well as some
NCISP also includes political data that tracks the number of
third-party companies, are issuing their own social credit
Communist Party members employed by firms; firms that
ratings to firms based on NCISP and NECIPS records
hire fewer Party members or avoid Party-building activities
(Table 1). In September 2019, the NDRC announced it had
may be penalized under the Corporate SCS framework.
completed its first “social credit evaluation” of 33 million
domestic Chinese firms and assigned each of them a
The Corporate SCS may also lead to a more opaque market
“Comprehensive Public Credit Rating.” This NDRC rating
access regime and increase compliance costs for U.S. firms
is the closest analogue to a national corporate social credit
operating in China. A recent report on the Corporate SCS
rating, but government documents indicate that it will only
published by the EU Chamber of Commerce estimates that
serve as a baseline for corporate social credit evaluation and
multinational firms in China will be subject to
will not take precedence over local or sector-specific
approximately 30 different ratings under the Corporate
ratings.
SCS, the requirements of which will be dispersed across
numerous government documents. Firms are also required
Multinational firms are already subject to the system’s data
to disclose to the Chinese government detailed data and
reporting requirements, according to the U.S.-China
other information about their operations and capabilities,
Business Council and the EU Chamber of Commerce.
including IP data related to patents and copyrights.
Some are already being rated by third-party companies
authorized to issue corporate social credit reports: one such
Expansion of China’s Economic Influence. The State
company, Xinhua Credit, launched an English-language
Council’s 2014 Planning Outline explicitly identifies the
version of its web portal in September 2019, providing one
Corporate SCS as a means of “enhancing China’s soft
of the first platforms for non-Chinese firms to access
power and international influence.” To that end, Beijing has
corporate social credit data.
framed “credit cooperation” as a central component of its
Belt and Road Initiative (BRI) and is working to export the
Table 2. Examples of Corporate Social Credit Ratings
Corporate SCS more broadly. Several countries in Asia and
the Middle East participating in the BRI have engaged in
Rating Entity
Jurisdiction
Rating
credit cooperation initiatives organized by the NDRC.
NDRC
National, All
Excellent (优), Good
Saudi Arabia, a strategic U.S. partner, is constructing its
Industries
(良), Medium (中),
own Corporate SCS as part of its BRI cooperation with
Poor (差)
China. If the Corporate SCS is exported more broadly along
the BRI, the Chinese government could potentially monitor
Jiangmen Ministry
Municipal,
AAA (100 Points)-C
and influence the behavior of U.S. firms and their
of Industry and
“Large-Scale”
(Below 60 Points)
interactions with Chinese companies in global markets,
Information
Firms
even if they are not directly operating in China.
Technology
Select Legislation in the 116th Congress
General
National
AA-D
Administration of
Importers &
In the 116th Congress, the UIGHUR Act of 2019 (H.R.
Customs
Exporters
1025) includes a provision that requires the Department of
State to submit a report to Congress detailing the social
Xinhua Credit
Private, All
A-E
credit system’s potential impact on the geopolitical and
Industries
economic interests of the United States. Additionally, the
Source: Trivium China Social Credit Watch; China Economic
Hong Kong Human Rights and Democracy Act of 2018
Information Service (
(H.R. 3289 and S. 1838), in its current form, requires the
中国经济信息社).
Department of Commerce to conduct an assessment of
Policy Implications
whether dual-use items subject to U.S. export control laws
are being used to develop China’s social credit system.
New Government Market Access Controls. Chinese
officials and some international observers contend that the
Corporate SCS may create a more level playing field by
Michael D. Sutherland, Analyst in International Trade and
merging domestic and multinational firms into a single,
Finance
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China’s Corporate Social Credit System
IF11342
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