China Power | Politics

China’s Corporate Social Credit System Demands Political Obedience from Companies

The primary purpose of the social credit system may not be to censor companies, but censorship is undoubtedly within its scope.

By Daniel Rechtschaffen for
China’s Corporate Social Credit System Demands Political Obedience from Companies

In this Friday, Oct. 11, 2019, photo, a woman wearing a mask stands near promotion boards for a NBA preseason game between Brooklyn Nets and Los Angeles Lakers in Beijing.

Credit: AP Photo/Ng Han Guan

Mainstream press has been flush recently with stories detailing Beijing’s encroachment on NBA – and American – values. China’s corporate bullying, a phenomenon well-known to seasoned China watchers, was dragged screaming into the light earlier this month when a pro-Hong Kong tweet from Houston Rockets General Manager Daryl Morey prompted a Beijing-fueled backlash against the NBA in China.

The incident sparked a contentious debate over freedom of speech. State-owned CCTV issued a statement that “Any speech that challenges national sovereignty and social stability is not within the scope of freedom of speech” – actually, it is – while in the United States, reporters cross-examined NBA luminaries on China issues. While the NBA ultimately emerged relatively unscathed as Chinese networks resumed game broadcasts, the episode has embedded Beijing’s exigent vice on foreign companies in the popular consciousness.

And that vice may, unfortunately, be about to get a lot worse. 

Critics liken China’s social credit system to an Orwellian police state nightmare. But while popular discourse of the system tends to focus on how it will impact Chinese citizens, its primary purpose is actually to monitor companies and ensure corporate compliance with existing regulations. 

First outlined by Beijing in 2014, the social credit system will finally be fully rolled out by the end of 2020. It will monitor individuals, the government, and, most importantly for non-Chinese nationals, companies. Corporate data will be collected, entered into a national database, and turned into a corporate credit score. High scores will result in incentives like tax breaks or more public procurement opportunities. A low score may lead to blacklisting.

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Most of the data collected is innocuous, designed to ensure compliance with paying taxes or honoring legal obligations. But a concerning aspect is how the system ties a company’s credit rating to those it interacts with or employs. For example, companies will be held accountable for the scores of their business partners, thus forcing companies to shun those which have been deemed unworthy by Beijing.

More worrying is how it will link the personal credit ratings of key personnel to the overall credit rating of a company, meaning the bad credit of one can pull down the other. China has a history of punishing companies for the personal opinions of its employees. Daryl Morey was only the most recent example. Cathay Pacific, Hong Kong’s flagship airline, was sanctioned in August by Chinese state-owned enterprises and regulators after some of the company’s employees joined the ongoing protests in the city. In a similar incident, Beijing criticized and then unleashed a state-run media smear campaign against the Big Four accounting firms after some of their employees took out a newspaper ad supporting the protests.

And while the primary purpose of the social credit system may not be to further censor companies, censorship is undoubtedly within its scope. “The SCS [social credit system] is set up to enforce existing laws and regulations,” says Kendra Schaefer, head of digital research at Trivium China, which recently released a report on the system. “Insomuch as political compliance can be tied to an actual regulation, this is possible. The best example of this happened in 2018, when China’s Civil Aviation Administration threatened to use the SCS to force U.S. airlines to adhere to the One China policy.” 

United, Delta, and American Airlines all complied and removed references to Taiwan from their booking websites.

The problem with China’s laws, of course, is that they are consistently and systematically applied to force political compliance. In August, it was Chinese regulators that threatened Cathay and ultimately forced its CEO to resign. On a recent trip to China, the Chinese government asked NBA Commissioner Adam Silver to fire Morey over his tweet. And as previously mentioned, last year Beijing told United in a letter that it would invoke the social credit system to “make a record of your company’s serious dishonesty and take disciplinary actions against your company” if the airline didn’t delist Taiwan from its website.

The social credit system may yet prove to be China’s most effective tool in its crusade for corporate obedience. And it’s impossible to know how far reaching its effects will be since Beijing continuously redraws its red line when it comes to sanctioned speech. Where it once ended at Taiwanese sovereignty, it now includes voicing support for Hong Kong protesters or speaking out against detentions in Xinjiang. Considering these trendlines, it stands to reason that the scope of unmentionable topics will broaden in the coming years. 

Daniel Rechtschaffen is a government relations manager at the American Chamber of Commerce in Shanghai. He was a founding editor of Sixth Tone, a Shanghai-based news agency, and is a contributor to Slate, Forbes Asia, and The Diplomat.