Social Implications of the Social Credit System in China

Written by: Astrid Priscilla Dion

Student Number: s2082209
Study: M-COM
Teacher: Dr. Alexander van Deursen
Date: 17th April 2019
 SOCIAL IMPLICATIONS OF THE SOCIAL CREDIT SYSTEM IN CHINA

INTRODUCTION OF THE TECHNOLOGY

We are used to rating everything from products, services, organizations, and even people. When
they meet our satisfaction, we rate them with more stars depend on the scale used. Likewise, when
they do not fulfill our expectation then we rate them with only a few stars. The intense use of social
media and other applications that enable us to rate other people and let other people do the same
to us triggers extreme concern about having good reputation/rating. And as other technology, the
rating system is also a double-edged knife with both advantages and drawbacks. This inspires
filmmakers to create "Nosedive", an episode in science fiction series called "Black Mirror" that is
aired on Netflix for the first time in October 2016.

The Nosedive main story was about a woman living in a world where people rate each other from
one-to-five star scale based on every interaction they have. This rating impacts people’s
socioeconomic status that certain points of rating determine what a person could or could not have
or access. A low rating means you cannot enter some buildings, can only rent old cars, banned from
some events, and other disadvantages. A high rating means you can live in a luxurious neighborhood
buy special flight tickets, get special cancer treatment, and other benefits (IMDb, 2016).

The popularity of “Nosedive” has been widely compared to the Chinese Social Credit System which is
planned since 2014 and to be implemented by 2020. Especially since 2018, the consequences of
Social Credit System have been becoming more real. The Telegraph reported “Nine million Chinese
have been banned from buying domestic flights, and three million more from buying business class
tickets in early trials of the scheme, under which citizens are rated on their compliance with social
norms and rules (Fullerton, 2018)”. A Chinese student had his enrollment suspended at a university
due to his father’s bad social credit score because he failed to repay $29,000 loan (Chan, 2018).
There is also a possibility to be publicly named and shamed as a bad citizen (Ma, 2018).

As expected, the media blew up this phenomenon and now we can find tons of articles and news
that relate the Social Credit System to Nosedive, expecting that what has been happening in China as
a real upcoming dystopia. But surprisingly, most Chinese are approving and supporting this idea
(Kotska, 2019). Does it mean that social credit system is not that bad? But more importantly, what is
the social credit system really like? How will it work?

Background History

Coincide with China's growing economy since the 1990s, capability and demand of borrowing for
both individuals and organizations have been increasing rapidly. To get a loan from creditors, an
assessment is needed to give an indication of risk and how likely a borrower could repay the loan
commitments. However, the creditors struggled to assess the applicants’ creditworthiness due to a
lack of data sharing between the creditors/lenders. As a result, there was a credit bureau in
Shanghai in 1999 that facilitated the credit information sharing between lenders to evaluate debt
applications. This initiative was then followed by other cities in China and soon after that, the term
"social credit" began to be used nationwide (Dawson, 2018).

As we saw that actually “social credit system” is not something alien at all, the escalation of
technology use in financial services enables the credit providers to do their own assessment of
applicant’s creditworthiness easier. Especially with the rocketing use of online banking and payment,
the service providers have been gathering an abundance of transactional and behavioral data. In
China, Alibaba as one of the biggest online shopping website that also owns "Alipay” as their
payment service, introduced “Zhima Credit" or "Sesame Credit" as an opt-in loyalty program for
their members. The credit program calculates a member's credit score range from 350 to 950 points
based on their spending habits of Alipay and their behaviors on Alibaba website. A member who can
score 600 and above is considered as creditworthy and earns benefits beyond the credit. Priority
access of screening at airports, free from the deposit for apartment or car rents, greater chances of
adopting a pet, and getting viewed first and more often on online dating sites/apps are some of the
advantages a “creditworthy” member could get (Chen & Cheung, 2017). Looking from the society’s
animosity to use this credit system, the Chinese government is getting more enthusiastic now to
take the “Social Credit System” beyond the financial matters.

Social Credit System Plan

In 2014, the Chinese government issued the Planning Outline for the Construction of a Social Credit
System to organize that by 20202 all of the social credit scores for its 1.4 billion citizens will be
available publicly (Marr, 2019). The main objectives of the establishment are to (i) obtain more
reliable data on the creditworthiness of businesses and individuals—conducive to economic growth;
(ii) strengthen trust in society; and (iii) advance honesty of the government units and enterprises.
This planning called for a “universal social credit code” that refers to an identification number for
legal entities which are individuals, organizations and companies. This national ID number will be
used for registration, tax payments and record other activities. When an
individual/organization/company goes to a Chinese credit website, by typing code/ID number of
another individual/organization/company and the website will show the credit records (State
Council of the People’s Republic of China, 2014). Therefore, the codes in this Social Credit System are
not scores or rankings, although there is a possibility for making so.

Business and professionals might be graded or ranked by or industry associations or by the

government monitoring organizations for regulatory purposes such as sanitation, safety and other
law compliances. But the social credit system itself does not produce any scores or grades or
assessments of “good” or “bad” social credit (Kobie, 2019). Although it sounds simple, the real work
is more than complicated. The criteria and consequences that go into social credit system depend on
what activity range that people do or where they are because instead of one big unified system, the
social credit plan consists of plethora assessment and information from multiple credit assessors,
both commercials and governments (Olhberg et al., 2017).

For example in the city of Rongcheng, all of the residents are given 1,000 points when they begin to
enter the social credit system. Their points will be deducted if they commit bad behavior such as
going through the red lights, jaywalking or misbehaving on the train. And the punishment could be
having slower internet speed, removal of traveling right either domestic or abroad or even restricted
access to public places (Botsman, 2017). Serious malfeasance can lead to being publicized as bad
citizen/organizations and being put in the blacklist by the government or other credit assessors.
Conversely, points will be added if the citizens commit good behavior such as volunteering or
donating to charity (Olhberg et al., 2017). The reward could be getting insurance or loan easier or
applying visa without providing an employment letter. This is only what happens in Rongcheng that
other cities might have different rules for individuals or organizations. And rules can be different too
between the government and commercial credit assessors.

Due to the vagueness of how is social credit system going to work when it is carried out by
commercials, the media especially western ones have been bringing Sesame Credit—most
prominent player of financial service in China—to the center stage. But the truth is that different
credit companies might have different systems. For instance, Sesame Credit values a user’s
creditworthiness on a scale of 350 to 950 points based on some five main factors. The factors are (i)
financial credit records such as how on time a person pays his bills; (ii) behavioral trends in
commercial transactions such as how much and how often a person spends and for what; (iii)
available assets and personal information; (iv) behavior and preferences such as how long a person
plays video game; and (v) social relationships such as who a person be friends with. There are
various benefits and drawbacks of this system provided by Sesame Credit from not allowed to
purchase train or flight tickets and hotels to getting priority on airport check-in (Sithigh & Siems,
2019).

To achieve the social credit system goals as envisioned by 2020, with profusion information database
and various credit systems, currently, the Chinese government is doing two major things. First,
connecting the data. The disparate data sources held by government and non-government needed
to be gathered, sorted, integrated, governed and secured. The data could include information about
transactions, transportation movements, activities and much more. The quality of data that is mostly
poor, unstructured and rife with fake information also needed to be taken into account as a serious
matter. Second, the Chinese government is also busy with defining appropriate/inappropriate
behaviors, systemizing the enforcement measures and the consequences, both reward and
punishment (Dawson, 2018).

Controversies

Soon after the Social Credit System plan document was issued for the public by the State Council in
June 2014, there was not much interest showed by Chinese media or even the public. There was not
anyone question the need for this system. The media coverage in China implied that most of the
citizens have grasped what social credit system is, how does it work and what are the implications
for their daily lives (Olhberg et al., 2017).

On the other hand, the English translation of the document that is published by a European scholar
in April 2015 triggered controversial debates outside China. From that moment to date, renowned
international newspapers and magazines have been discussing the Chinese social credit system. The
majority of the articles related to the social credit system with Nosedive, an episode of Black Mirror
series that is mentioned at the beginning of this paper, along with its worst consequences of dark
society. If in any case, the society will go that bad, why the previous study resulted in very high
approval and support of this system from the Chinese citizens? Especially the older, male, urban
citizens with higher income and higher education (Kotska, 2019). Why so? Because the Chinese
government has the proper reason behind this initiative.

As China's economy has been rapidly skyrocketing, so have been the crimes, especially when it
comes to online crimes. Online fraud is becoming the most prominent concern for consumers and
businesses. In 2014 alone, in the year that the social credit system plan was announced, at least
400,000 cases of online fraud both individuals, families and organization or businesses have been
reported with up to 10.7 billion CNY loss (Stepan & Mokry, 2016). Not to add offline or unreported
crimes. All of the crimes could impact society even long after it happens. For instance, Chinese baby
formula milk scandals that happened a decade ago made the parents in China distrust and avoid the
country’s dairy industry and other food producers (Minter, 2019). These crimes create a general vibe
of suspiciousness and lack of trust in the society which therefore, a solution is needed.

As one of the developing countries, China has been facing the same problem like others, where the
economic growth outpaces the government’s ability to create policies in order to promote and
nurture trust between citizens and businesses. But lack of trust in the society will hinder growth,
opportunities and cooperation of business and hence, slow down the economic progress. Hence, the
Chinese government came up with a social credit system as one of the solutions. Contrary to the
western opinion that the social credit system will be a problems catalyst rather than a solution, the
Chinese are positive about it. Chinese citizens have always known that the government knows much
about them, so this idea is not as jolting as it would be for the Europeans and Americans (Marr,
2019).

Another problem besides the context of the reason is the language barrier. Quoting from what
Jeremy Daum—a senior researcher at Yale Law School who is also the founder of China Law
Translate—to RADII on their interview, the English term “social credit” is misleading desperately.
Daum said that the Chinese phrase “社会信用 Shehui Xinyong" could also have been translated as
"public trust" instead of "social credit". There are many ways to translate the meaning of that phrase
beyond the "social credit" phrase to the English speaking ears. However, the phrase "social credit"
has been around since the first time that it is hard to alter the public's misunderstanding outside
China (Little, 2019).

SOCIAL IMPACT OF THE TECHNOLOGY

As we know that with every technology application comes four pitfalls that are commonly made in
public opinion to estimate the social impact of a technology . The first pitfall that holds the idea of
total revolution lead people who think that the social credit system in China will radically change the
way we live. This is due to the scope of the project that is massive and going to transform China’s
legal, social and economic environment significantly (Olhberg et al., 2017). Most discussions on the
media trapped into this pitfall that China's society is getting closer to the dystopia that they will not
have any control over their life anymore. However, we should not ignore the reality that technology
needs time to penetrate the society. Until now a year before 2020, nobody is certain that the social
credit system will be fully implemented next year and how it is going to be implemented in social,
economic and cultural aspects.

But the fact that most people and media outside China fell into the first pitfall should not let us
forget that there is a big possibility that people in China fell into the second and third pitfalls. Since
the credit system has been around for a long time, the social credit system planned by the
government is thought by them merely as continuous improvement of existing credit systems.
People with this belief underestimate the transformational potential of a technology that sometimes
incremental. At a certain point once this social credit system has touched every aspect of Chinese
citizens' life, it will take no time to change the ways things work in their world. However, most of
them are positive about it that the Chinese government presents the Social Credit System as a cure-
all solution to societal and economic problems and lead them to the third pitfall, the idea of a
technological fix. This superficial idea escorts people to believe that the trust and crimes problem in
China could be solved by the credit system. But the truth is the problems have deeper and broader
roots that also need other integrated tools as a solution.

The last pitfall traps the one who thinks that technology can be used for any purpose, either good or
bad, depends on how people use it. Although it is fairly true, instrument and purposes influence
each other. The social credit system as an instrument is created to achieve the government's goals
but it is also vice versa. The government's goals could also be shaped by the development of the
instrument which is social credit system. Now the government is trying to grow trust among citizens
and business for economic growth and good social vibe, but once they are all bounded in that
system, the government could add more political purposes and use the system to achieve new goals.

Besides the pitfalls that trap people's thought, the Social Credit System will give social implications
related to the trends happening in the society. With the social credit system, the complexity trend of
registration control will be reinforced. Hence, it is expected that people and organizations are more
trustable to cooperate with various activities and therefore, can accelerate the societal processes.
Network individualization and social inequality are also predicted to be increased. If someone's
credit is also judged by whom he/she is being friends or families or neighbors with and whom he/she
works for, people will be more selective in choosing their social circle and try to keep it small. Once a
person gains low credit, the chained consequence will restrict him/her from certain activities or
actions that incommode him/her to earn more credit. This case will lead the society to a wider and
deeper inequality gap. However, it is still gray how the social credit system will affect the space. The
reward of high social credit will allow people to mobilize more and likewise, the punishment of low
social credit will slow down the society's mobilization. But one thing that is obvious, the social credit
system will slow down political freedom since people who criticize the government could have
his/her credit reduced. Even when people who say nice things about the government will have
his/her credit raised, his freedom of speech is still limited or even controlled.

FURTHER CONCERN OF TECHNOLOGY

Considering the vagueness of how the social credit system works and how it will affect the society,
there are two further concerns that the writer wants to emphasize to be taken seriously by the
Chinese government.

First, improving the system and legislation. There are a lot more to develop more than just
gathering, sorting, securing and governing the data. Security and privacy of data need to be
prioritized. It is more than practical matter because engineering the law of which things are right to
do and which are wrong, along with their consequences is a crucial work (Engelmann et al., 2019).
The legislation that accompanies the system is also a pivotal affair since it is ethical. Corresponding
fields of law and overlapping policies should be considered such as privacy and data protection law,
e-commerce law, banking or online payment law, etc (Sithigh & Siems, 2019).

Second, be transparent and keep the public informed about the system and legislation, both inside
and outside China. The previous study showed that Chinese citizens have a positive appraisal of the
social credit system because they think the system is fair and transparent. If this transparency is not
maintained well, public support could be eroded over time (Kotska, 2019). Although privacy is not
valued really high in China, the public also needs to be informed of how far their privacy will be
disrupted (Chorzempa, Triolo, & Sacks, 2018). Freedom of speech is also one of the main debated
issues that touch essential civil right. Public needs to know who decides which way the system goes
and how is the relationship between government and commercials go as the primary actors. Their
actions are important to watch since currently the Chinese government is obviously depended on
private companies that know how to carry out such a massive system. The "drama" between these
actors could delay or even fail the social credit system (Olhberg et al., 2017).

In the view that China is now becoming one of the most powerful countries in the world, public
outside China could not assume "what happens in China stays in China". Therefore it is also
necessary for the Chinese government to keep non-Chinese public to be informed well to avoid
misunderstanding and controversies. The information provided to the foreign public is useful for
analyzing how the social credit system will affect other countries that have a relationship with China.
Other than that, other countries can also study the Chinese social credit system whether to be or not
to be considered as a tool/instrument for a better (or worse?) future.

REFERENCES

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