Peking It is said of an Adidas branch that it failed a random check in Shanghai. Checked t-shirts would not have met the quality standards. Among other things, there were deficiencies in the “water absorption before washing”. The database says about the industrial group Siemens: The company is an “A-level taxpayer”. The chemical giant BASF is praised as an “advanced certified company”.
Every company and every private person engaged in China has to face the Chinese “credit system”. It was planned as an all-encompassing system, with tightly networked databases and automated consequences. Everyone should be digitally monitored almost without limits – and possibly sanctioned, so the fear. Those who behave well in the People’s Republic receive privileges, those who behave badly have to face serious consequences.
But one year after a decisive implementation phase, it becomes clear that the system only works in parts and is nowhere near as digital as it has been proclaimed. This is shown by a study by the Berlin China think tank Merics, which Handelsblatt has exclusively received in advance. The year 2020 revealed, it says, “how much digitization still lacks in certain areas”. China, of all places – which likes to present itself as a super digital power.
“You have the image of a uniform system in your head in which everything is highly digital,” says Katja Drinhausen, one of the authors of the study. “The social credit system is actually far from a uniform system and is highly fragmented,” said Drinhausen. “It’s also very little digital.” The entries come from the supervisory authorities and are usually not automatically updated digitally, but manually – and are incomplete.
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Nevertheless, there is no all-clear for those monitored – especially not for companies. Even if the system has become known primarily because of its effect on individuals, according to the Merics analysis, companies are the “main goal” of the system. “Chinese citizens should have more trust in Chinese companies,” explains Drinhausen. This should compensate for the competitive disadvantage of Chinese companies in the domestic market compared to foreign companies.
Arbitrariness without limits
But even if it is nowhere near as serious as initially feared, the system is problematic. Above all, the fragmentation leaves room for “traditional channels of individual and political influence,” says the Merics report. Individuals and companies would have to find their way around various regulations, lists and rating systems. There are no limits to the arbitrariness, especially when it comes to penalties by local governments.
Although the Chinese government is pushing digital surveillance with other projects, such as smart cities, the social credit system remains “the least digitized of China’s tech-driven surveillance initiatives,” the report said. The management consultancy Trivium, which specializes in China, recently came to a similar conclusion in a comprehensive report on the system.
“The current technological maturity of the corporate social credit system is overrated in public discourse both inside and outside of China,” it says. Although China is testing technologies designed to remotely detect operational violations, there is no known case where automated data collection has resulted in the automatic application of sanctions without the intervention of human regulators.
Nevertheless, the Merics researchers see this as a kind of paradigm for China’s future. The system will become a “defining feature of Chinese governance” over the next few decades. The credit system will be expanded in the coming years.
On the one hand, the system offers the opportunity for environmental protection standards, for example, to be monitored and followed up more systematically. On the other hand, the system threatens to become the perfect instrument of repression and censorship.
All large German companies are already in the directories – some with good grades, but also with criticism. In two publicly and freely accessible databases, companies can see whether and which entries they have: On the one hand at Creditchina, a database of the National Development and Reform Commission (NDRC) and on the other hand on the Chinese regulatory authority State Administration of Market Regulation (SAMR) ).
The databases should have a pillory effect and at the same time increase trust, especially in the companies – especially in the Chinese, because they often have a poorer image compared to German companies, for example.
40 black lists
There are a total of around 40 black lists that companies can come up with, such as a list of environmental crimes or violations of intellectual property. This also includes ratings in which companies are rated using scales. Anyone who does not behave as desired must expect penalties – completely bypassing the courts.
“There was the case of a German company that had a bad tax rating,” says Luisa Kinzius, who, as a project manager at the Berlin-based consultancy Sinolytics, advises companies on the social credit system, which specializes in China. “This led to problems with bureaucratic processes that were also outside the tax area, such as product licensing.”
According to the Merics study, 47 institutions in China are involved in the development of the social credit system. The overall leadership lies with the Chinese State Council, a kind of cabinet of China, the NDRC and the Chinese central bank.
European business representatives had already warned of the consequences of the system in 2019. A survey by the Chamber of Commerce Abroad (AHK) in Beijing among its members revealed that most companies did not know much about the social credit system.
Such a survey would likely turn out differently today. The management consultancy Sinolytics, which specializes in China, has already advised around 30 to 40 German companies on the subject. Large corporations in particular now have their own “social credit managers” in China who mainly deal with the issue.
Great uncertainty in the economy
According to experts, there have been improvements since 2019, following criticism from company representatives, “which have taken the greatest horror from the system,” as Sinolytics consultant Kinzius says. “An important improvement is that companies now have more clarity and clear rules on how to get off the lists.”
Nevertheless, there is still great uncertainty in the economy about when to end up on a blacklist, says Sinolytics consultant Kinzius. “This is also due to the fact that it is very time-consuming and complex to collect the relevant social credit system-specific rules and documents, because they are not collected centrally in one place.”
According to the Merics study, thousands of documents are scattered around the websites of ministries as well as provincial and city government levels.
More: Become a technology leader, replace imports, conquer foreign markets: China’s new economic strategy has what it takes to change the global economy. With consequences for Germany too.