[A few updates by way of clarity have been made in Red]Over the next three months, China will be unveiling a series of interdepartmental agreements on joint enforcement of rewards and punishments for ‘trustworthy’ and ‘untrustworthy’ conduct in every area of life that has legal regulation!
That includes areas like: Food Safety, Travel, Energy Production, Environmental Protection, Marriage Registration, and many many more.
In areas where there are already joint enforcement agreements, the first lists of enforcement targets [meaning people or organizations subject to regulation] will be released no later than tomorrow: March 31. The lists of targets for rewards are called ‘redlists’ and the lists of targets for punishments are called ‘blacklists’. [i]
Where there are not yet joint enforcement agreements for a regulatory area, an agreement should be put in place by the end of June, with the first lists of targets released at the same time. [ii]
But let’s back up….
These red and black lists are at the heart of China’s emerging social credit system. Despite its name, however, social credit isn’t really focused on scores of any kind, but concerns regulatory enforcement of existing laws.
Basically the idea is to:
- Use real name registration systems (and unique organization ID numbers) to make sure that all of a person or organization’s conduct is traceable back to them.
- For organizations, their owners, controllers and legal representatives might be responsible for the organization’s misconduct.
- Where laws and regulations or other legally binding requirements are broken, the responsible party may be put on a blacklist by the government agencies that enforce those laws.
- Regulatory and supervisory agencies publish standards for what violations of law will get you entered on the lists.
- Punishments accompanying blacklisting tend to be industry specific, like increased inspections for a food-safety violation
- Violations that don’t meet the black listing standards might still put you on a non-public list for enhanced scrutiny.
- if you are put on 3 or more key scrutiny lists you will be put on a “Big Data Warning List”, and transferred to black lists if there is further misconduct. [Big Data = 3]
- Regulatory and supervisory agencies publish standards for what violations of law will get you entered on the lists.
- Through separate joint enforcement memorandum, different departments agree to take enforcement actions in their power against persons that other departments have blacklisted.
- Blacklists from each field are generally released to the public and other government agencies through National Social Credit Information Sharing Platform.
- [These enforcement mechanisms tend to be coercive, rather than punitive, meaning you can perform a certain action to make them stop.]
- A joint enforcement memorandum for enforcing court judgment defaulters (失信被执行人) is probably the broadest reaching in terms of consequences, [many articles mistakenly think the associated restrictions on “high-spending” apply to people with general bad credit.]
This system, while closely tied to enforcement of existing laws, still gives much cause for concern.
- One concern is that it opens the door to additional punishments disguised as credit consequences. If blacklisting is for violations of laws, is it fair to add further punishments beyond that authorized for the underlying violation?
- Collateral consequences of legal violations are not unique to China (many areas in the U.S. have harsh professional restrictions for those convicted of crimes of ‘moral turpitude’, which can also be a bar to immigration), but the more remote the restrictions or punishments become from the underlying offense, the more worrying it becomes.
- Another concern is that the government might ultimately try to stretch the system to make a violation in one area truly invoke the full enforcement panoply of all government departments, making it so that violations in any area truly make it impossible to function until this ‘credit’ harm is undone. This would be a form of legal exile or outlawry, in which those violating the laws were almost viewed as having broken the social contract and no longer entitled to the benefits of legal and social protection.
- The joint enforcement agreements available so far do not suggest this is likely, and it would be hard perhaps to get so many departments to agree to such a radical enforcement system.
[i] Guiding Opinions on Strengthening and Regulating Efforts on the Management of Lists of Persons Receiving Joint Incentives for Trustworthiness or Joint Punishment for Untrustworthiness Section II .
[ii] Guiding Opinions on Strengthening and Regulating Efforts on the Management of Lists of Persons Receiving Joint Incentives for Trustworthiness or Joint Punishment for Untrustworthiness Section III.
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Dear Mr. Daum,
Reading your articles, you seem to imply that the SCS is mainly a system of “compliance records” rather than a system of “regulatory ratings”, contrary to the general belief. The main risk regarding the SCS application (my focus is primiraly aimed at its corporate application), would therefore to be listed on a blacklist due to serious law/regulation violations. There is little consideration for the “rating/credit” itself. Therefore, I would like to know what is the link between “rating” and “blacklist” ? For ex, being rated “Grade D” by the Tax Credit Administration, would lead me automatically on a blacklist ? Or would I be exposed to specific punishments/rewards directly related to my “tax Grade” ? Are the “Grades” directily mentionned in the MOUs as a factor to be blacklisted ?
I thank you for your information and your excellent work on this website,
Best regards,
Nicolas Gilbert
Hi there,
This is a reasonable question.
First, I would say that the general belief is that there is a universal cross-industry rating, which isn’t really true, although there is a 4 point compliance scale for corporations emerging.
The answer to your question though has a few parts: Industry rank/rating systems are internal to the rating, and can take many shapes. In customs, for example, one ‘rating’ is the idea of being a certified importer/exporter, which is an idea of certified/accredited importers, which is adapted from the World Customs Organization, and simply means that certain proofs of having internal security systems in place have been give to make you a trusted importer. Is that a rank? It’s certainly a level– many of the internal ‘ranks’ are things like this, rather than evaluations even within that sector, let alone based on broader data.
The blacklists are lists of serious violators and how that is reflected in any industry specific system may vary- some places overlap the definitions precisely, some lower you for being in a blacklist- etc. You have to look at each blacklist specifically, but generally the criteria for entry in an industry blacklist will be violations that would direct you to a certain class/rank if such a thing exists in that field.
Hi, thank you for your answer.
Would it be fair to say that rewards/punishments induced from good/bad ratings are therefore limited to the specific industry which is in charge of such rates ? (except when such good/bad ratings also mean that you have been added on a red/blacklist of course). Also, to what extend having a bad rank at an industry-level would lead you to have a bad rank at the national level ( since you mention an emerging 4 point compliance scale for corporations)? I assume the 4 point compliance scale reffers to the Comprehensive Public Credit Rating (Excellent/Good/Medium/Poor) ?
Best,
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