Should Foreign Companies in China Be Worrying About China's Corporate Social Credit System Now? | The Conference Board
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CHINA CENTER PUBLICATIONS

Should Foreign Companies in China Be Worrying About China's Corporate Social Credit System Now?

Prior to the coronavirus crisis, alarm bells were ringing from many quarters of the foreign business community about the specter of China’s Corporate Social Credit System. Our view would be that the program warrants a robust watching brief as of now, but not emergency measures – at least not yet.

 

The current ruling group in China almost certainly aspires to implement digital authoritarianism (they’d say “digitally-enabled governance”). Like many new technologies, there are dystopian and utopian possibilities for the system. Their orientation, however, is arguably biased towards the “control and manage” side of the spectrum, rather than the “safeguard public welfare” side (that we see in Singapore, for example). The government appears to be making significant progress on fast-tracking the development of related technologies, including video surveillance, facial recognition and AI-enabled identification and tracking analytics. This said, there is a big difference between what the Chinese government says in public media and what the realities are.

 

  • The centralization concept envisioned for the system is very complex in terms of managing and assuring data quality, data integration and usability. Having lots of data does not guarantee, by a long shot, that useable information, much less insight, can be derived from it.

 

  • More importantly, there is intense institutional and bureaucratic resistance to information centralization and integration at the local government levels and across ministerial verticals. This is a deeply rooted feature of the Chinese political economy and bureaucracy – we’re talking thousands of years of roots. In the Chinese political system, information is power, and agencies and officials typically work hard to sequester information in order to accrue power and protect their interests. It won’t be easy to change this age-old dynamic, even with President Xi’s comparatively powerful hand.

 

  • Building the IT system is not the hard part, nor is commandeering loads of data. These are inputs, and the Chinese government is throwing lots of money at this part of the recipe. Operationalizing the workflows and effecting the collaborations necessary – and the effective sharing and use of information across institutional boundaries – are the hard parts, i.e. the outputs. There is a huge gulf between the two that will take incredible leadership, political will and human capital talent to bridge.

 

For these reasons, it will likely be some time, if ever, before we see the Corporate Social Credit Score system manifest fully as per the government’s documented statements and plans. In the meantime, claims in state media that the system is or will soon be fully functional serve to provoke self-imposed compliance. Not a bad outcome.

 

There is, however, a risk that the purported “blacklist” function of the program – something already in the regulatory purview of numerous agencies but now elevated as a regulatory tool by virtue of the Social Credit Score initiative – may be unleashed and more prevalently used in anticompetitive ways. Members should monitor this risk carefully and prepare in advance to respond if/when necessary.

 

 

Forward Thinking is a digest of one or several ideas percolating at the China Center based on insights derived from expert opinion, data work, market observations, and/or member dialogue. Digest entries are premises and working hypotheses on key China issues and developments of high importance to members.

 

AUTHOR

DavidHoffman1.jpg

David Hoffman

Senior Vice President Asia and Managing Director of the China Center for Economics & Business
The Conference Board

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