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What Is China’s Social Credit System?

4-minute read

What if, instead of a simple, finance-based credit score that tells creditors how reliable you are, you earned a credit score number that told your government just how trustworthy you are as a whole person, not just as a debtor?

This is what many are worried China’s emerging social credit system is slated to become. It aims to track individuals and organizations based on their lawful or unlawful behavior.

However, due to language and cultural barriers, it can be hard for those in the West to interpret policies like this and discern what’s good, what’s bad, and what’s potentially problematic.

To make a complicated topic a little easier to understand, we’ve created a primer on what you should know about China’s social credit scoring system.

What Is The Social Credit System, Really?

In 2014, the Chinese government released a plan for how it would implement a social credit system to increase trust and encourage honesty. According to China Law Translate, a website developed by Jeremy Daum, a senior fellow at Yale Law School’s Paul Tsai China Center, the social credit system was introduced in part to establish creditworthiness in multiple sectors of public and private life, including creditworthiness in government, commercial, social and judicial affairs.

To achieve this, the government proposed creating mechanisms that would reward trustworthiness and punish untrustworthiness. One of these mechanisms involves using public opinion and public shaming to discourage bad behavior by propping up do-gooders as honorable and publicizing the shameful actions of wrongdoers.

However, as we’ll see, there still isn’t really a single clear picture of what this system looks like in practice, even 5 years later as China approaches its self-imposed 2020 deadline to fully implement the project.

What Does The Social Credit System Look Like Currently?

So far, it’s kind of a patchwork system managed by different local governments in a pilot period, trying out their own versions of grading and scoring with varying results, and a few private companies running “loyalty-type programs for their customers,” according to Jamie Horsley, also a senior fellow at the Paul Tsai China Center, writing for Foreign Policy magazine.

Basically, the social credit system is still being figured out and hasn’t yet been centralized. Contrary to what you may have heard, there is no single social credit score that gets assigned to every Chinese citizen – at least not yet.

In fact, the primary mechanism of punishment, Daum wrote in a 2017 article, is the system of blacklists that are used mainly to punish companies and organizations for unlawful business practices.

It seems that the main goal of this new system is to keep businesses, or individual professionals who represent those businesses (such as lawyers or doctors) in check. Fraud is a big problem in China, and it has eroded the trust that many citizens have in their country’s institutions. Ostensibly, the social credit system is meant to tackle that problem and improve overall trust and trustworthiness.

Is It Really As Dystopian As It’s Been Portrayed?

Plenty has been said about this new social credit system, with many referring to it as “chilling,” “creepy” and even “Orwellian.” However, many reputable news outlets have also pointed out that there’s a lot of misinformation surrounding the pilot, and that while there are legitimate concerns to be addressed about this new system, many of the most popular talking points aren’t necessarily rooted in the reality of what has actually been implemented.

First, it’s important to understand this system within the broader context of Chinese culture, which is different from our own Western culture in many ways.

Writing about the system for the Washington Post, Bing Song, director of the Berggruen Institute China Center, notes that “China’s governance tradition of promoting good moral behavior goes back thousands of years.” This new “social trust system” is meant to combat the widespread and rampant fraud the country has seen in recent years, he said.

However, Song also warns that the project “could result in alarming outcomes if it does not learn from the missteps of local pilot programs,” such as the students who have lost out on college admission due to their parents’ low credit scores.

In her Foreign Policy piece, Horsley wrote that, “To be sure, China does regulate speech, association, and other civil rights in ways that many disagree with, and the use of the social credit system to further curtail such rights deserves monitoring.”

So far, though, the individuals who will be impacted by these programs and policies seem to be mostly optimistic. A 2018 survey of 2,209 Chinese citizens found that 80% of respondents approve of the varying social credit systems in China, both on a commercial and government level.

Why is that? Of those surveyed, 76% of respondents said they see the lack of trust in Chinese society as a problem. Plus, according to the survey, they don’t really feel that it affects them that much or has made them change their behaviors – many of them were unaware that they were even part of a local government social credit program.

How Is It Different From The U.S. Credit System?

Whether you see China’s social credit system as a good thing or a slippery slope to dystopia, it’s easy to see that it’s a far cry from anything we’re familiar with here in the States.

While our credit industry is heavily regulated by our government to ensure credit is being used fairly, the entities involved in determining an individual’s creditworthiness and issuing credit aren’t owned by the government. And, thanks to our fair lending laws, those businesses are only allowed to use certain types of information when determining our creditworthiness. For example, while a credit card company can decide that an individual’s poor history of on-time payments makes them a risky borrower, it can’t refuse to give that person a line of credit due to factors that are related to their identity.

So, while China has opted to make its credit-scoring system more all-encompassing, the U.S. system remains centered around a person’s finances.

Interested in learning more about your own personal credit situation? Sign up for Rocket HomesSM to learn what your score is and what steps you can take to improve it. You can also check out more articles on our personal finance and credit learning centers.

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