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Keeping track of social credit

Recently released documents have added a key new dimension to China’s developing ‘social credit’ system in the form of ‘credit-based’ regulatory measures. Social Credit has always developed largely as a tool for regulating business to ensure compliance with existing legal obligations, but the new documents give shape to more specific mechanisms and their goals. Before discussing some of the major new innovations, however, it’s important to consider the big picture.

Social Credit as De-Regulation?

If you’ve read stories about social credit and it’s menacing slogans about ‘the untrustworthy not being able to take a step’, it might be hard to believe that the relevant legal authority frames social credit as a means of streamlining regulation to remove burdensome requirements on business and letting market forces guide the way. It might even sound absurd, or like intentional double speak, arguing that enforcement has to be stricter in order for regulation to be more relaxed.

Those who have lived or worked in China, however, are likely familiar with another, related paradox: that the laws are both draconian and unenforced, or maybe unenforceable. Even internationally, many have encountered China’s weak intellectual property enforcement and the culture of amusing knock-offs it has given rise to, and the lax food safety regime that has tragically resulted in poisoned infants and pets. It’s hard to reconcile this with the other image of China having a rigid control-based governance model and all powerful law enforcement panopticon. Unfortunately this is not a situation where the truth is somewhere in the middle – both are simultaneously true.

Even after years of improvements to regulatory systems and rules, China remains an ‘everything goes’ environment in many senses. Regulatory enforcement is often sporadic and selective, but unstoppable and unrelenting once mobilized to address a specific case or carry out a special crackdown. This type of ‘lightning strike’ regulation, unpredictable and deadly, hurts government credibility, with the public unlikely to rely on government assurances of product safety. At the same time, the lack of stable expectations leads some business to view the laws with resigned helplessness or contempt, and thus committing whatever violations they think they can get away with.

Businesses and individuals can be left in a constant state of uncertainty, not knowing if they can trust service providers and partners, but also unable to know when law enforcement will target them for some previously acceptable or overlooked violation. Domestic businesses have little choice but to try and work with this situation; that foreign businesses are willing to tolerate it is likely testament to how much profit can be made in the Chinese market, and how generally permissive the environment can be.. until it isn’t.

The credit-based regulation models introduced in the newest social credit authority hope to combat some of these problems by reducing unnecessary, arbitrary and redundant regulation while also ensuring that consequences for violations of laws are consistent, meaningful, and inescapable. They employ a number of tactics, including data sharing, standardizing rules across the nation, enforcement transparency, and new types of punishments, to ensure accountability, and to inform other market actors of potential risks. The goal is to arm market actors with more information to make their own decisions, make a more predictable business environment, and minimize unnecessary and unhelpful government intervention.

Scores! Sort of!


The new documents do introduce a ranking system of sorts, breaking businesses into groups of Excellent, Good, Fair, and Poor. The rankings are the result of ‘comprehensive public credit appraisals’ aimed at measuring legal compliance, and are based upon two types of information, ‘public credit information’ and verified voluntary disclosures.[i] Sharing and consolidation of these two information types for access by different departments across all provinces and levels of government has been a key component of social credit.

  • Public Credit Information is information produced or acquired by government entities in the performance of their duties, such as licenses, permits, court judgments, administrative punishment decisions, and so forth.
  • Registered voluntary disclosures include information provided by business such as their professional certifications, qualifications, performance on contracts, etc., for which they vouch for the accuracy and consent to public disclosure of.

In addition to the national appraisal system, local governments and industry regulators are also instructed to develop appraisals, which are to be used to complement the national appraisal. Private and commercial entities are also encouraged to create various credit reports to meet market demand, and as they are not limited to public credit information and voluntary disclosures, one would hope to see additional regulation on the credit market soon concerning the scope of permissible information. [ii]


The credit appraisals’ main impact is as the basis for differential treatment in regulation. This means that it will influence the extent and force of regulatory actions, a system called hierarchical and categorical management that has been implemented within many regulated industries already. In general, the policy for inspections has been to randomly select the targets and inspectors to avoid discriminatory treatment, and to publicly disclose the outcomes, but hierarchical regulation allows reductions or increases in the likelihood of being selected for inspection based on record of past compliance.

Those rated as having ‘Poor’ compliance histories will be informed of this in person by local officials, and told the reasons for the ranking, and the methods for improving their ‘score’. Those with only ‘Fair’ compliance rankings might be given reminders and offered trainings in credit management. [iii] Input on the ranking system is to be solicited from market entities, to help the system become useful, and ensure it is playing the intended role. [iv]

As for outright punishments, the new documents make clear that the system of blacklists and inter-departmental punishments developed over the last several years will continue for major violations of law, and is likely to remain the primary punishment mechanism. That system involves public naming of serious offenders in a regulatory area, and restrictions on their applications for permits, project approvals, government benefits, and so forth, sometimes even in other regulated fields. The blacklist system, like the new ranks, uses increasing inspection frequency and rates as a primary punishment, and it is likely that this consequence of ‘poor’ rating will overlap with the existing blacklist penalty that led to it.

Application of New Technology

The new regulations do talk about the integration of new technologies into regulation, but are very light on specifics. At times this involves literally just listing off technologies that might be incorporated somehow, as here:

“rely on the internet, big data, the internet of things, cloud computing, artificial intelligence, block chain and other new technology to promote innovation in regulation, striving to maximize regulatory efficiency, optimize regulatory costs, and minimize disruption to market entities.”[v]

In addition to the use of the internet and databases to share information on market entities as mentioned above, there are a few other mentions of possible technological applications that may be expanded on later. These include remote and mobile regulation techniques, which are not elaborated on, but are presented as being less arbitrary and disruptive than on-site inspections and still subject to transparency requirements. [vi] Stationary pollution emission monitors might be one example. Another application mentioned is the use of ‘big data’ to predict and monitor risks, or discover leads as to misconduct, which is an area to watch carefully.[vii] Data-driven law enforcement is a developing area in China and elsewhere in the world, but it’s hard to say if there is a meaningful mechanism here, or even what is meant by ‘big data’.

Other interesting points:

Whistle-blower System: The new documents call for the establishment of a whistle-blower [吹哨人] system, to offer meaningful rewards and protections, as part of a general reform of ‘public oversight’ that also includes making complaint and report systems easier. [viii]

Incorporating Professional Opinions: Regulators are encouraged to incorporate opinions of professionals from areas such as accounting, law, property assessment, certification testing, notary, arbitration, and taxation in regulatory law enforcement.[ix]

Mandatory Reporting: As part of market entity regulation, the documents call for work towards a system where product safety accidents must be reported. This is notable because social credit regulation does not create many new affirmative obligations on market entities, but here we have a specific disclosure required. Also notable is that it is directly attributed to the people’s ‘right to know’, meaning that the announcement will likely be public. [x]

Credit Pledges: Credit Pledges have been introduced elsewhere, but are mentioned here as part of the reform of shifting from prior regulation to post regulation. This means reducing burdens on beginning a business, such as intensive licensing and registration schemes, and shifting regulatory resources to monitor conduct during actual operations. Credit pledges are assurances offered by a business that they can, or will, comply with regulatory requirements, and the pledges may be offered in place of having a review or filing. Failure to make good on such a pledge, can of course be a considered in later appraisals of compliance.

Relaxed Enforcement in new fields: For emerging fields where regulatory standards and needs are less clear, a period of observation and understanding is called for to foster development. [xi]

Partial Immunity for Officials Doing their Jobs: Social Credit is about tracking information on compliance, but also about tracking enforcement to limit discretion and unnecessary regulation. [xii] One interesting piece is discussion of ensuring that officials who are fulfilling their duties aren’t held responsible for misconduct by one of the targets of their regulation. In such a situation, a comprehensive review is to be conducted to consider their responsibility.

[i] Guiding Opinion on Accelerating the Advancement of the Establishment of the Social Credit System with New Forms of Credit-based Regulatory Mechanisms, (4)-(6).

[ii] Notice on Delivery and Application of the Results of Comprehensive Public Credit Appraisals of Market Entities V.

[iii] Ibid VI.

[iv] Ibid IV.

[v] Guiding Opinions of the State Council on Strengthening and Standardizing Regulation During and After the Matter (2)

[vi] Ibid. (7), (17)

[vii] Ibid. (7), Guiding Opinion on Accelerating the Advancement of the Establishment of the Social Credit System with New Forms of Credit-based Regulatory Mechanisms (16)

[viii] Guiding Opinion on Accelerating the Advancement of the Establishment of the Social Credit System with New Forms of Credit-based Regulatory Mechanisms (16)..

[ix] Ibid.

[x] Guiding Opinions of the State Council on Strengthening and Standardizing Regulation During and After the Matter (14)

[xi] Ibid (12).

[xii] Ibid. (17)

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Jeremy Daum is a Senior Fellow of the Yale Law School Paul Tsai China Center, based in Beijing, with over a decade of experience working in China on collaborative legal reform projects. His principal research focus is criminal procedure law, with a particular emphasis on protections of vulnerable populations such as juveniles and the mentally ill in the criminal justice system, and is also an authority on China’s ‘Social Credit System’. Jeremy has spoken about these issues at universities throughout China and in the U.S.; and has co-authored a book on U.S. Capital Punishment Jurisprudence for Chinese readers. He is also the founder and contributing editor of the collaborative translation and commentary site, dedicated to improving mutual understanding between legal professionals in China and abroad.
He translates, writes, edits, does web-design, graphic design, billing, tech support, and social media outreach for China Law Translate.

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