China’s Social Credit System Project: Origins, Mechanisms, and Controversies

Summary

In the early 2000s, the government of the People’s Republic of China designated the building of a social credit system (SCS) a top priority. The ambitious plan to “raise levels of trustworthiness” in the market, society, government, and the judiciary gave rise to speculation in global media reporting about a social credit score assigned to each citizen by the central government to dictate their lives. Rather than such a unified system of top-down control, however, the SCS is a political umbrella project devised to tackle problems that emerged as China transformed from a planned economy to a (socialist) market economy. These included widespread fraud, legal noncompliance, and debt defaulting. In response, SCS projects proffer several regulatory innovations, several of which however pose risks to the protection of citizens’ legal rights, are impaired in practice as state agencies are unwilling to exchange data, and face criticism for merging the hitherto rather separate realms of financial credit, regulatory compliance, and moral education.

China’s SCS emerges against the background of a global rise of assessments of trustworthiness. Whether in the market or within the state administration, consumers, landladies, lenders, and civil servants, among others, increasingly base their decision-making on assessments of trustworthiness such as risk profiles. Against this background, the SCS is a unique case of a national government attempting to take charge of the rise of trustworthiness assessments and shape the system in a way that it caters to its agenda. To observers of digital governance, alternative credit reporting, quantification of behavior in the data era, surveillance, central–local relationships in public administration, automated administrative justice, and authoritarian legality, the case of China’s SCS presents a range of research avenues.

This contribution counters widespread misconceptions by shedding light on the key concepts of the SCS project and contextualizing them within historical developments as well as global regulatory practices. The section titled “Social, Credit, System?”, following the introductory section, dissects the terms and translations around the SCS.

The section “Historical Background: Three Roots, Three Pillars,” delineates how three needs coincided in post–Mao Zedong China: First, the emerging market economy required a financial credit system so that lenders could make informed loan decisions. Second, regulatory agencies, understaffed and overwhelmed with the task of implementing a series of newly passed laws to regulate the market, required tools to enforce their decisions. Third, with the retreat of state-owned enterprises, the Communist Party lost its influence on citizens’ social lives and sought new means to (re)build “socialist morality.”

The “Political Architects and Actors” section presents the SCS’s political architecture and introduces the many state and non-state actors that are involved in the initiative. These include state ministries and the Supreme People’s Court but also private companies, such as providers of credibility assessment technology.

The “Core Mechanisms” section highlights the workings and logic of selected core mechanisms that the SCS has brought to light and examines first evidence of their effectiveness. The first mechanism is best framed as reputational regulation. It includes making available social credit information to others in the market, as well as, in some schemes, the intentional moral framing of negative social credit records information to achieve a shaming effect, for instance through the disclosure of blacklists of “trust breakers.” In addition to this merely reputational mechanism, the SCS project developed tangible punishments. State agencies, courts, and non-state actors cooperate to collectively discipline entities that have violated laws in a serious manner in one field with their own respective repertoires of administrative punishments or other restrictions. The third mechanism, credibility-based regulation, requires regulators to produce “credibility assessments” from social credit information they hold and base their discretionary decision-making on these assessments. Regulatory subjects with higher scores enjoy lighter scrutiny, while low scorers face intensified oversight. This predictive governance approach remains experimental and fragmented in China. Complementing these punitive tools are rewards for trustworthiness—from priority handling in public services to easier access to loans under “Credit+” schemes.

The “Controversies” section lays out some of the major controversies that SCS building sparked inside and outside of China. Supporters hail it as a governance innovation to bring the regulatory state into the data era. Especially the technologically more ambitious projects under the SCS come with high hopes for fairer, faster, and more resource-efficient regulation. However, they are also the least feasible. Unwillingness of local officials to share social credit records and incompatible software applications result in data silos, which together with weak accuracy of social credit records undermine the usefulness of credibility-based regulation. A second focal point of the SCS debate is the lawfulness of its mechanisms. While SCS building inspired developments in data protection law and in the legalization of hitherto hidden blacklist regimes, its mechanisms also undermine fundamental principles of administrative law such as the principle of proportionality and the prohibition of improper connection. Third, the SCS inspires contributions that seek to defend substantive notions of trustworthiness, credit, and morality in the face of their redefinition through SCS policies.

The final section, “Outlook,” explains the decline in the appearance of central-level framework policies on the SCS as indicating that the project has moved from the design stage to the implementation stage. It then presents directions for further research. It highlights the need for more empirical investigation into the real impact and effectiveness of SCS mechanisms in China and argues that the SCS presents a case study of various phenomena of scholarly interest, such as assessment-based governance.