Expert Speak Raisina Debates
Published on Oct 23, 2018
China’s social credit system This is the sixty ninth part in the series The China Chronicles. Read all the articles here

With the onset of the fourth industrial revolution, many countries are harnessing the power of data and AI-enabled processes to transform global communications, commerce and social relations. But there is one country designing an elaborate plan using a novel big-data-enabled approach to change the way it governs, monitors and shapes the behaviour of its 1.4 billion population as well as local and foreign companies—China. This plan called the Social Credit System (SCS) aims to ‘construct sincerity in government affairs, commercial sincerity, social sincerity and judicial credibility’.

What started as a financial credit tool to curb defaults, evaluate creditworthiness of individuals, and boost trust in a socialist market society in 2003; the social credit system has morphed into a framework of behavioural control where individuals and organisations will face the consequences of their actions.

The SCS is seen as an instrument to ‘close institutional and regulatory gaps, leading to more honest and law-abiding behaviour in society’.

 

For several years, China faced issues with regulations and compliance in several areas such as legal enforcement, environmental protection, food safety and corruption. As defaulted debtors continued to borrow credit and businesses avoided complying with regulations, a trust deficit was created harming economic efficiency. This narrowed focus on the incapacities of law enforcement and penalties by the judicial system. Thus in 2014, the State Council issued a ‘Planning Outline for the Construction of a Social Credit System (SCS)’ to foster trust and morality among market players and communities while engendering absolute trust in a socialist authoritarian leadership.

The system will be accessing, integrating and assessing data from the public and private sector—payments, criminal records, shopping and driving habits, online browsing as well as day-to-day social behaviour. The three largest tech companies Baidu, Alibaba and Tencent are contributing to the infrastructure design of the SCS because of their access to large reserves of data. As these companies continue to gamify their credit scoring systems, more people are drawn in as the positive reinforcements provided are attractive enough to maintain higher scores or ‘trustworthy’ behaviour. But one must keep in mind that reliability, compatibility and interoperability are key when there are multiple sources of data. The infrastructure framework proposed fails to take this into consideration thus infringing upon privacy and data sharing norms.

Currently many cities are operating pilot programmes but by 2020, the Chinese government wants to use this system nation-wide to silence dissent, ‘name and shame’ undesirables and reward desirables.

 

If a person honks or does not adhere to driving etiquettes, plays too many video games or speaks against the government, he will be blacklisted for ‘untrustworthy’ behaviour. These undesirables will be punished from travelling, getting a loan or job, and having interactions with others who have higher scores while the desirables will have access to easy credit, better education, access to exclusive dating apps, etc. By managing and controlling social capital, the leadership wants to rebalance China’s economic development and steady the growing urbanisation. Rather than letting individuals conform to a unified civic sense, the system might act as a coercive tool by incentivizing citizens, businesses and government agencies to adhere to laws and regulations. This will polarise the society into the haves and the have-nots. This form of social sorting into the haves and have-nots will not only result in discriminatory practices but also increase inequalities. Achieving growth with such social injustice is not possible and will act as a lag in the future. Thus, it is important for citizens to be aware if the system is binary and to know the yardstick against which they need to improve their behaviour.

From an economic perspective, the SCS can prove to be beneficial as the Council’s main aims are to reduce transaction costs, promote market openness and reduce state regulation.

 

Companies—both foreign and local—will have the incentive to make business decisions in accordance to the government’s industrial targets and comply with regulations to ensure speedy implementation. But, China may use the SCS to direct investment and steer business decisions towards social and environmental problems advancing innovative technologies and inducing economic growth, thus restricting the freedom of business decision making. Foreign companies may find it hard to strike a balance between adhering to the Party’s ideologies for quicker approvals and their global standards of business. Therefore, rather than increasing the ease of doing business, the SCS may create a deterrent.

Therefore, the SCS attempts to influence choices in a way that leaves the State better off. This top- down approach based on paternalism is a hard nudge towards law-abiding behaviour. With such pervasive surveillance technology in place, Chinese citizens may lose the opportunity at a vibrant economy to an Orwellian setup determined by algorithmic governance. If this sort of state control over the economy becomes dominant in other countries, it is time to question this evolving practice of governance that establishes control over human agency.

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