How Big Of A Splash Will China’s ‘Social Credit’ Make?

Add “social credit” to the list of factors that could influence the Chinese economy — and, perhaps, consumer activity in other parts of the world.

By now you’ve likely read the reports: Millions of Chinese consumers denied flights, train trips and other access to normal economic activities because, in the eyes of government officials and their Big Data grading system, they are considered “discredited.” The system, in the works since at least 2014, seeks to punish people who have committed crimes such as spreading fake news about terrorism or creating problems on flights from riding on transportation for as long as a year.

Reports have indicated that the move meshes with Chinese President Xi Jinping’s plan to create a social credit system that it said on the website is based on the principle of “once untrustworthy, always restricted.”

So, where does China’s social credit system go from here?

First, it helps to understand the goal of the Chinese officials behind the program. “China’s social credit system is an ambitious, technology-driven initiative through which the state seeks to create a central repository of data on natural and legal persons that can be used to monitor, assess and change their actions through incentives of punishment and reward,” according to a recent paper on the topic from the Mercator Institute for China Studies.

In fact, to hear the Chinese government tell it, the social credit system is nothing less than a vital part of the health of the country’s “socialist” system, according to a translation of a government document regarding the topic:

“It is an important method to perfect the Socialist market economy system, accelerating and innovating social governance, and it has an important significance for strengthening the sincerity consciousness of the members of society, forging a desirable credit environment, raising the overall competitiveness of the country and stimulating the development of society and the progress of civilization,” reads a State Council notice from 2014.

That’s a grand vision, and not all grand visions make it fully into reality. But given the population of China and the size of its economy, even partial implementation would bring significant impacts.

“Even if the full vision of the system is not realized, the scope of this project is massive and will transform China’s legal, social and economic environment significantly,” Mercator said in its report.

It is not yet clear how the social credit system will mesh with China’s development of digital payments and eCommerce, though authorities have worked with Alibaba-owned Sesame Credit Management, Ant Financial and Tencent Credit Bureau Co. to build the system. Even amid that unclarity, observers and critics of the social credit system wonder if it — much like the recently enacted General Data Protection Regulation in the European Union — will essentially apply to companies and consumers throughout the world.

For instance, the Mercator report cautioned “that the provision of social credit scoring services from commercial players such as Alibaba and Tencent, who are simultaneously expanding their global reach, raises questions regarding the extent to which the social credit system will collect and use data generated outside of China’s borders. If considered successful, China’s social credit system may eventually even become a model for other countries in the future.”

Current plans calls for China to roll out its full social credit system by 2020, according to numerous sources, and accompanies a general trend toward more top-down control by the country’s Communist leaders. The system, as being used now, assigns 1,000 points to each resident, with points deducted for traffic tickets and other social missteps, and points awarded for, say, volunteer activities, according to a recent examination in Foreign Policy.

Businesses do not get a pass from the system, with their scores determined by such factors as fines and timely tax payments. According to Foreign Policy, “high-scoring businesses pass through fewer hoops in public tenders and get better loan conditions.”