Social credit overview

Source: China Law Translate (10/31/18)
Social Credit Overview Podcast

Sorry for the sound quality, it’s just me with a laptop and a baby sleeping in the other room.


Hi this is Jeremy Daum of China Law Translate and Yale Law School’s Paul Tsai China Center. If you’re listening to this you’ve probably seen an article or watched a show about China Social Credit System and chances are it also mentioned Orwell or Black Mirror somewhere in there.

In a recent speech US Vice President Pence even mentioned Social Credit as a violation of human rights right alongside internet censorship, religious persecution and mass detentions in Xinjiang, calling it “an Orwellian system premised on controlling virtually every facet of human life.” Wow!

The thing is that over the last year I’ve spent a good amount of time looking at China’s social credit systems, writing articles and translating lots of relevant legal authority, and the reality of social credit that I found through that research, and by living in China, just isn’t that exciting. It’s pretty mundane regulatory law with only a few new wrinkles.

So for me the question now has become how did social credit get to be so interesting to Western audiences? I mean let’s face it there’s a lot of bad stuff going on in the world today and most of it commands our attention for just a day or two; and I’m talking about mass shootings here. So, what does it mean that this story has continued to capture people’s attention for so long?

First though let’s take a look at what social credit actually is.

Before I get into it I need to ask a favor of everyone, which is to just put aside any notions of citizens rating each other or government rating them. That isn’t part of it, and if you keep hearing that every time I say “social credit”, we’re not gonna get very far.

Social credit isn’t really about a credit score at all, in fact it’s less of a single system or a program than a vague idea that covers a wide variety of regulation–the unifying feature in them all, to the extent that there is one, is that keeping records will help make people more honest and reduce misconduct.

To give you an idea of the breadth of what’s considered social credit, the planning document from 2014 to 2020, which was the earliest legal authority in sort of the modern era of social credit, covers government affairs: increasing government transparency, public supervision of government acts; commercial regulation: keeping track of corporate violations of industry regulations; social organisations: in welfare fraud, stopping charity fraud and encouraging public use of credit ratings and reporting; and the courts: trying to improve the credibility of the courts by increasing transparency and the capacity for enforcing judgments.

Now, I’ve found that the best way to introduce social credit is to focus on three different aspects. The first of these is the financial aspect: financial credit similar to what happens in a lot of countries in the world. The second is a regulatory scheme, and this involves blacklists for various violations of laws and legal obligations; and the third is an educational component where the government is hoping to instill the values of trustworthiness in the population.

So looking at that financial component, the idea was that social credit would expand the financial credit services markets to the huge chunk of China’s population that wasn’t covered by the bank’s own financial credit system because they’d never borrowed money or they never invested, they didn’t own property, or they had no savings.

That system tends to use the phrase 征信 or personal credit reporting rather than 社会信用 but it certainly is part of the social credit system, it’s just part of this financial element that I’m talking about.

To accomplish this, the People’s Bank of China authorized eight businesses that had large data banks of their own to try and develop some useful credit reporting systems using alternative data, and that included ant financial’s Sesame Credit building off the Alibaba empires’ consumer financial data and Tencent, the social media empire building off of their resources.

A lot of the reporting on social credit, particularly early on, got really confused by this. There was an assumption that these were pilots for a government system, or a private version of a government system; and things like Sesame Credit’s consideration of purchases that you made on Alibaba platforms got presented as government policy.

Government wasn’t so amused by all this, and they haven’t authorized any of these reporting systems to become official credit reporting establishments, finding that conflicts of interest encouraged use of their own products, and that they weren’t producing reliable indicators of loan risks. So today those eight companies are in a new phase where they each have access to a database of internet lending data, which is non-bank lending, and they’re adding that information to their own proprietary data to try and see if they can come up with a more meaningful credit measure for lending.

Now let’s look at the second, part which to me is the more interesting part and is certainly the most clearly established and operational today. To understand this aspect there’s three basic components: the first is real name registration systems, the second is industry specific blacklists, and the third is joint enforcement memorandum- and those are MOUs between different agencies.

The real name registration systems are about making sure that data gets tied to individuals or corporations and organizations, and the idea is that everyone has an unique number tied to them. For citizens it’s a citizen identification number, for organizations, it’s a social credit code that replaced previous license numbers and the idea is that when you do stuff like get a cell phone number, all of that has to have a real name tied to it so someone is responsible for what happens on it and they even limit the number of cell phones you can get on each ID so that you’re not getting them and giving them to other people allowing them to act anonymously.

The second step is blacklists. Each regulatory and supervisory agency was charged with making standards for which violations of the laws they enforce would get you entered into a blacklist, and if it’s a lower offense it might get you entered into what they call key scrutiny list which is a warning lest something less than the blacklist. Like I say, because of the limited authority of each agency they tend to be industry specific so the FDA would have a food safety list that would also result in industry-specific punishments. so a food safety violation that got you on the list might result in increased inspections of your food production facility.

There is a little bit of big data here in that here’s a ‘Big Data Warning List’ where if you appear on three or more of these key scrutiny lists in different areas, you can get put on the big data warning list which means that if you have any further misconduct you’ll be promoted to the blacklist and all of them, but really this is just comparing whether you’ve appear on any three of these lists simultaneously.

The final step is these Memorandums of Understanding for joint enforcement of incentives and discipline. Right now there are 37 of these memorandum all of which are publicly available, and what happens is that these different agencies agree to take action against people on other agencies’ blacklists so it does result in you having consequences outside of the industry for an offense in one industry.

Now, looking at these 37 documents, what I’ve noticed is that the mechanisms tend to be coercive rather than punitive and by that I mean that they’re not trying to just punish you or add on extra punishments, they’re trying to get you to do something. So if you have an outstanding obligation, other ministries or other agencies might be willing to take action against you to try and get you to do this.
The most famous one of these and the most commonly used that’s affected millions of people is the courts’ list which is often confused as being the entire social credit system. I call it the Judgment Defaulters list it’s the 失信被执行人 list, and what it means is that these are people who have an active court judgment against them. So the court has made that standard- if you have a court judgment against and you have the ability to act on it and are refusing to do so, then you get put on the courts’ list and other organizations in an MoU have agreed to enforce restrictions on high-spending. And this is where most of the penalties we’ve heard of as being part of the Social Credit System come into play. The restrictions on airplanes the better-quality trains etc are all part of this and having a judgment against you from a court could mean that you lost a civil lawsuit it could also mean that you have an administrative penalty and then the administrative agency went to the court for enforcement.

So you can see here that even this duty arm of the Social Credit System as it exists so far is essentially a record of legal violations. Data is being consolidated on a national platform concerning the violations but not really integrated, certainly not integrated into a universal score or rating.

Still there’s plenty of reason for concern here and I’ll cover a few of those the first is for real name systems. Well, anonymity is important. It’s necessary for dissent but it’s also important for people with just unpopular opinions or lifestyles, be they religious, sexual orientation, or what-have-you. You might need to be anonymous and while the systems tend to be anonymous upfront, meaning you could choose you know whatever name you want to show the world, somewhere there’s a record attached to you and you can’t act in true anonymity.

For the court judgments list, my problem is that not all judgments are created equal and having a blacklist for failure to perform that treats a judgment a to give a formal apology the same as it treats a corporation’s failure to make compensation for poisoning children through a faulty food product- those two shouldn’t be equated and the consequences shouldn’t be the same.

As for the general system of joint enforcement’s through the blacklist and MOUs, the fear is that it’s opening the door for additional punishments disguised as credit consequences. The law has already determined what the appropriate penalty is and it shouldn’t be this easy to simply add on additional punishments. That said, in other countries the failure to perform on an administrative penalty can result in heightened consequences, so you know it may not be uncommon but it’s not just.

Also, while I emphasize that the black lists and joint enforcement mechanisms are concerned with violations of existing laws and legal obligations that also doesn’t mean that they’re just. If the underlying offenses and laws are unjust, like limitations on speech or religious practice, then their enforcement just doubles down on that. I think though that enforcement of unjust laws is qualitatively different than what’s been presented in the media as a global analysis and weighing of your citizenship or your trustworthiness and is an injustice that would be confronted in a very different way.

And finally something that most people might not think of as a problem at all, is that the system tends to hold management responsible for violations of a corporation. The legal representatives and the actual controller of a corporation that finds itself subject to some of this joint enforcement is usually also subject to some level of enforcement including some shareholders, and while some people might welcome this piercing of the corporate veil and not letting the people who own corporations sort of get away with misconduct while the corporation faces punishment, I think there’s real potential for people who aren’t actually aware of or responsible for the violation getting roped in with that as well.

I do want to address the point systems that have appeared in a couple of dozen different pilot or demonstration cities. I tend to disregard them quite a bit because I see them as part of the educational or propaganda arm of Social Credit, trying to raise that culture of creditworthiness. Part of this is that in most of the laws like Shanghai which does have an app giving points,and also has a comprehensive regulation of Social Credit that doesn’t mention that app or scores of any kind. More importantly what I’ve noticed is that there are never real punishments for low scores and no punishments ever for things that aren’t violations of existing law or legal obligations. The prizes tend to be along the lines of various citizenship awards that existed previously; things like for being a model citizen, model worker, civilized work unit, etc.

I would not be surprised to see a system like this is rolled out at some point, but I also would not be very alarmed by it. It doesn’t seem to have a real impact as opposed to the blacklist systems which ARE part of regulation.

I also have trouble envisioning a universal score with more serious consequences because I don’t think a universal score is that useful to people. The example that I like to give is that when you enter a restaurant you’re looking for information on the Sanitation of the restaurant and the quality of the food. If there’s an ‘A’ on the wall that means seven people got food poisoning here last week but the chef visits his grandma a lot and never speed, that’s not helpful to you. Everyone is looking for data they can use. Banks want to know who can repay loans, the police want to know who’s likely to commit crimes, some of this data is attainable some of it’s not, but we’re looking for something that’s useful. A general score just won’t help you find the data you need.

And I think data is the key. It’s the key to why the story has become so fascinating as we all become aware that we’re generating so much more information about what we do; a digital footprint for every action that we take. But most of us don’t know where that data is going and what ends it could be used for. I think it’s that fear about our own data that has led this story to be so interesting, and that the idea of a data-driven society has become so fascinating.

At the same time, for domestic stability reasons, China has an interest in overstating its capacity to collect and analyze data like they overstate their capacity to monitor with surveillance cameras and facial recognition. They want people to believe that misconduct will get caught.

It’s commonly said that there’s a progression that will happen where ultimately we want a society where people don’t desire to break the rules but the earliest stage is that they are afraid to break the rules.

I want to make clear that nothing I’m saying about social credit is meant to disregard China’s actual social control measures or social management abilities. It’s more the opposite, that when China wants to take social control action it’s usually not terribly shy and has a lot of tools at its disposal.

It’s important though to get the story right. It’s important because we only have so much outrage to go around and we want to make sure it gets to the right targets. It’s important because we want to confront China on the right issues. It’s important because we want to be able to look at China and learn the lessons we can about ourselves and what might happen with our data in the future. And it’s important for maintaining our own credibility and creditworthiness.

I can say for myself that having watched some of the coverage of Social Credit, it made it hard for me to believe other coverage I saw in areas I knew less about in
China- on issues that mattered more.

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