The Chinese corporate social credit system

[notimp]

China is about to implement an algorithmic scoring system for corporate market actors.

The first independent study on it made by consulting firm Sinolytics on behest of the European Union Chamber of Commerce in China, describes it as -

'The Digital Hand – How China's Corporate Social Credit System Conditions Market Actors'
https://www.europeanchamber.com.cn/...a_wake_up_call_for_european_business_in_china

Meaning, that china is implementing a more direct approach on how to 'guide' the proverbial invisible hand of the market - within their capitalistic market economy.

Its only 35 pages long, looks parseable and should be an interesting read.

Short video summery:

From the pdf:

English name coined is 'Corporate Social Credit System', it's due to be implemented by the end of 2020.

'Uses realtime monitoring and processing systems to collect and interpret Big Data, which facilitates immediate detection and compliance and raises or decreases a companies 'score' (buzzwords )

Good (according to Sinolytics):

- equal enforcement of regulations (because algos)
- European companies that use low emissions tech on "heavily polluted days" may not be shut down in the future

Bad:
- administrative overhead for SMEs.

Ugly:

The level of compliance of business partners will also affect a company’s score, which will necessitate lighter monitoring of each link in the supply chain. Monitoring concerns do not end there either, as individual ratings of a company’s legal representative and high-ranking management will also impact company results. This will require European companies to consider monitoring the individual behaviour of employees, a major taboo for many

Lol.

 

[CallmeBerto]

This is code for "GET THE FUCK OUT OF THERE"

Though I am scared that governments will try this in the West in less then a decade under the disguise of protecting the children or stopping criminals early.

This is totally fuck.

 

[notimp]

Kind of called it in my master thesis, btw. (A few years ago. Which makes me oddly joyful... )

 

[notimp]

This is code for "GET THE FUCK OUT OF THERE"

You know what - you might be right, there (in addressing specific people)...

It continues:

European companies need to start preparing as soon as possible. Having gone through the process myself, it was shocking to comprehend just how much needs to be done to prepare for the imminent implementation of the Corporate SCS. Strengthening communication with the government is a good first step: you will need to stay up to date on relevant regulations. However, improving internal communication is also hugely important, as the actions of one department can quickly impact the score of the whole business.

*rofl*

It continues:

For better or worse, China’s Corporate SCS is here to stay and businesses in China need to prepare for the consequences, and they need to start now.

edit:

For multi national companies, a set of about 300 requirements can be expected to be put into place. If they are not met, and scores plummet too low, there are repercussions.

What are they - you ask?

Sanctions are not limited to penalty fees or court orders. They also include higher inspection rates and targeted audits, restricted issuance of government approvals (e.g. land-use rights and investment permits), exclusion from preferential policies (e.g. subsidies and tax rebates), restrictions from public procurement, as well as public blaming and shaming. Sanctions can even personally affect the legal representative and key personnel of a company.

Lol.

edit: This is the actual call for action:

Compliance challenges: Most rating requirements are concerned with strict compliance with market regulations. While the ratings also introduce new requirements, most directly refer to existing regulation. International companies with strong internal compliance systems will generally be well placed to maximise rating results. However, companies need a full understanding of the ratings. Once detected, gaps in the fulfilment of rating requirements are generally not difficult to fix through targeted adjustments of internal processes, but companies need to know exactly what must be done to secure a high rating in order to act accordingly.

edit:

Here the customary 'go ahead, and monitor each other' - clause...

Strategic challenges beyond regulatory compliance: A small but important set of requirements goes beyond mere regulatory compliance and creates strategic challenges for companies. For example, the requirements relating to the behaviour of business partners (e.g. suppliers and service providers) burden companies with the responsibility of monitoring their partners’ trustworthiness. Similarly, the new trade-related requirements currently in preparation are likely to include aspects beyond regulatory compliance. These structural challenges will not be tackled by process adjustments, rather they will require executive level decision-making and in some cases major organisational alterations.

edit: This is the investment impact callout:

This could lead to a scenario in which the Corporate SCS creates a more level playing field in China – though with a downside: the game played on that field will be more difficult and controlled than before.

However, this may be an overly optimistic interpretation, as the system does have the potential for discriminatory use towards international companies.

First, there is no guarantee that the ratings cannot be applied in a biased way, targeting specific companies with greater scrutiny. [...]

edit:
Here is the 'go ahead and self censor - best guesses welcome' principle:

For example, only during the latest round of releases of official guidance documents did clearer indications emerge confirming the preparation of a comprehensive metascore.3 How exactly the many topic-specific ratings of the System will be integrated into the comprehensive metascore and what exact role this meta-score will have within the overall Corporate SCS mechanism does, however, remain opaque at this point. Ultimately, the data infrastructure behind the System—the necessary basis to effectively implement these mechanisms—is still incomplete.

Hint: 100 bucks on 'it will never get too transparent'.

edit: This is also part of the 'social chilling'

• Privately-run credit information platforms (Qichacha, Tianyancha and many others) A significant number of private companies run platforms that make use of the company records published via the National Enterprise Credit Information Publicity System. As with the government-run publicity system, it is possible to use these privately-run platforms—which often have a more accessible user interface—to search for a company by name and Unified Social Credit Code. In addition to company credit records, these platforms also integrate data from various other government sources on, for example, patents, trademarks and legal cases. For full access to all data, the platforms charge a small fee, which is part of the overall idea of the system: to create a new market for companies to use and process credit information on companies that is provided by the government.

• Databases and ratings of third-party rating agencies Different to Qichacha, Tianyancha and others, third-party rating agencies like HiggsCredit or Alibaba Cheng.Xin use the data provided by the government but do not just make it more accessible; they also build on the data provided by the government by integrating their own data sources to calculate comprehensive meta-ratings. Both privately-run credit information platforms and third-party rating agencies have data exchange agreements with the government, and their rating results will be increasingly integrated into the overall assessment on companies. However, for the time being, it is unclear to what extent they will feed their own rating results back into the government system.

edit: Stuff like this is just beautiful(ly vicious)...
(Turns around 'not guilty until proven' and makes you formally apply for 'restoration of credit' with set in place waiting periods.)

Companies must be proactive in applying for credit restoration, as merely fulfilling legal obligations is not enough. To reset its negative record, a company needs to submit a ‘credit restoration commitment’ letter (信用修复承诺 书), in which the company promises to abide by the law and accepts supervision by the government. Depending on the type of negative rating, additional material may be required. This includes proof of participating in credit training, registration documents that require official seals and a credit report (信用报告) (refer to Figure 4 on credit restoration).21 Not all blacklisting entries can be restored, however. For example, blacklisting entries that relate to public safety or are due to serious crimes such as fraud cannot, and business operations can be halted.22 Entries that can be restored must usually wait for a minimum publicity period to pass before the company can apply for credit

edit: Here is some candy. (Beautiful. )

The tax rating rates companies on a scale from A to D, with every letter category referring to a fixed range of points that can be achieved. Whenever a company receives an A rating, this positive information is made publicly available via the National Enterprise Credit Information Sharing Platform

edit: Also bad points for filing stuff late (of course ).

edit: BWAHAHAHA!

External reference data can also include media reports

Found an intentional backdoor here, boys.

edit: Oh it is so beautiful(ly vicious).

Individual rating results impact company rating results and vice-versa

The tax rating is an example of the linkage between the corporate rating mechanism and the individual rating mechanism of the SCS, as it integrates individual rating results into the assessment of the company’s rating. If the company is registered or operated by a person who is individually rated as an 'abnormal' or Grade-D taxpayer, this leads directly to a D-level rating of the company. By the same token, a company’s D-level tax rating will also have a significant impact on a responsible individual’s personal tax rating. If the company tax rating is D, the individual tax rating of directly responsible personnel will also be downgraded to D.

Other rating results (may) impact the tax rating and vice-versa

One of the most important characteristics of the rating requirements is the interdependent impact of rating results in other fields. This becomes clear in the tax rating stipulations: rating requirements explicitly include ratings by other government authorities as a criterion for computing the tax rating. As this is the case for many of the already existing ratings, this linkage creates a ripple effect through which a negative rating in one area also puts downward pressure on the company’s other ratings.

 

[notimp]

The impacts of being rated as a 'distrusted company':

- Higher inspection rates
- Targeted audits
- [being distrusted is a] reference point during all kinds of administrative approvals and bureaucratic procedures
- [being distrusted is a] reference point for financial and credit affairs
- Exclusion from public procurement
- Public blaming and shaming

A key mechanism of the Corporate SCS is the public blaming and shaming of distrusted companies. This includes the disclosure of untrustworthiness to the public via the CreditChina website and the National Enterprise Credit Information Publicity System.

The information shared via these public channels of the System is intended to be used as a reference point for business and investment decisions by corporate partners and customers. The core idea behind this public blaming and shaming is to make sure that distrusted entities cannot successfully continue their business in the Chinese market. The shaming mechanism is not fully implemented yet, but the level of publicity and public scrutiny to be generated in cases of infringements is likely to be ramped up significantly in the coming months. [Implementing institutions: Ministry of Commerce (MOFCOM), NDRC]

- Impact on the legal representative and directly responsible personnel

In the customs authentication rating, as in virtually all other ratings of the Corporate SCS, a negative rating has a significant impact on the company’s legal representative as an individual. With respect to the customs rating, the legal representative will be hit with travel restrictions if the company fails to pay customs duties or fines and penalties after a corresponding court-order. The legal representative will also be restricted from purchasing insurance products with high cash-value premiums and from purchasing real estate or land if her or his company receives a rating as a distrusted customs company. Usually, she or he is also not allowed to take on another post as legal representative as long as the company is blacklisted. [Implementing institutions: Supreme Court, Ministry of Transport (MOT), MOFCOM, Ministry of Public Security (MPS), Ministry of Culture and Tourism (MCT), Civil Aviation Administration of China (CAAC), China State Railway Group and other relevant departments]

[Travel restrictions! Yay! Restrictions from purchasing insurances! Yay! Restrictions from purchasing real estate! Yay! Restrictions from taking another job in the field! Yay!]
- Impact on other ratings or classifications [No certs for you!]


The importance of data aggregation:

All companies registered in China transfer a significant amount of detailed data to Chinese government authorities. In many cases, companies are unclear about how this data is used as a basis for the government’s computation of regulatory ratings. Taken individually, most of the transferred data points are not highly sensitive information. However, the integration and systematically cross-cutting use of data on the government’s side can become a challenge. It provides the government with a full picture of the detailed performance and capability of a company. Ensuring the security of this data is one of the key promises of the government. Companies need to hold the government authorities to this promise and make sure that no detrimental use of this comprehensive data occurs.

[Please, pretty Please? Now social media becomes a problem? ]

Many companies are not fully aware of the significant amount of data that is being made public and is openly accessible to outsiders, including potential business partners, competitors, media and any other institution or individual interested in the company’s performance. Companies need to routinely check their entries and data on the respective public platforms in order to detect and remedy cases of negative entries or incorrect information. A proactive approach towards this published data will become increasingly urgent.

- seems so..

Oh, there is a 'Cyberspace Administration of China for fake news and rumours' - neat. I'm sure some forum users would like to have that in the west a well..

The new system, called the National ‘Internet+ Monitoring’ System (国家 “互联网+监管” 系统), aims to fully integrate the complete set of monitoring and credit information data on companies. This includes all sources of government monitoring data and government rating results, as well as rating results and other data from third parties like (selected) commercial rating agencies and e-commerce platform providers. Ultimately, it also integrates existing complaint and reporting channels like the one for environmental protection offenses (12369 网络举报中心) and the one from the Cyberspace Administration of China for fake news and rumours (国家网信办举报中心), as well as video surveillance systems.

Here is the list on corporate technical implementation:

A consortium led by Taiji Computer Corporation, in cooperation with Huawei, Alibaba, Tencent and video surveillance provider VisionVera, is setting up the system. Taiji Computer takes the major responsibility for integrating the different data sources into one platform and Huawei provides the server and cloud infrastructure. Alibaba (via AliCloud and Alibaba Sesame Credit Company Credit Rating) and Tencent have a major role in analysing the ratings and records of companies as part of the platform. Finally, VisionVera brings in its video surveillance data.36

 

[notimp]

Here is what makes you a 'heavily distrusted entity'

a. Using boilerplate (standardised) clauses or carrying out fraud, coercion, malicious collaboration or compulsory trading and other methods (利用格式条款或者实施欺诈、胁迫、恶意串通、强制交易等手段). b. Endangering national or public interest (危害国家利益、社会公共利益). c. Infringing the legitimate rights and interests of customers (侵害消费者合法权益) (this is what FedEx, for example, was accused of in June 2019).

And of course - the system and the weighing is 'ever changing'.

Corporate wishlist (current):

Can we please have:

- Information flow and accessibility: The respective government authorities could facilitate the preparatory efforts of companies by improving the flow of information on ratings and rating requirements to all companies. Consolidation of operationally important information through clear communication channels would be especially valuable for SMEs as they will find it particularly challenging to mobilise the necessary internal resources to acquire and continually track all necesary information.

- Clarity and channels of communication: There is a strong need for a productive exchange with government authorities with the aim of clarifying some of the information that is still partially unclear in the existing regulatory texts. Chinese government authorities have an interest in facilitating this process of clarification, not only by reacting to the direct inquiries from companies and business associations, but also by proactively improving the precision of Corporate SCS stipulations. An additional step to facilitate the flow of information and enable companies to raise questions and concerns would be the establishment of clear communication channels and defined points of contact for different rating areas.

- Targeted modifications: International companies can identify details in the rating requirements that are particularly difficult to fulfil. Some will be due to technical difficulties, but others will be driven by the tension between some SCS requirements and MNCs' corporate principles and norms. A productive dialogue between international companies and government authorities on these details, aiming to find feasible compromise solutions, should be in the best interests of the Chinese authorities.

- Transition periods: Adequate transition periods should precede the operational start of sanctioning mechanisms, preferably combined with issuance of clear notifications to alert companies about impending changes. This measure would provide companies with the necessary time to adjust processes and organisational structures accordingly. Ideally, if a company is found to be non-compliant with a rating during this period, notification from the government can help companies to react before full implementation.

Another piece of candy for your way out:

The Corporate SCS already rates the behaviour of Chinese companies operating in foreign markets. Through the rating for foreign economic cooperation, Chinese companies can be blacklisted for misconduct abroad.

Thats (most of) it.

edit: Oh, and it will be part of international trade relations.

 

[DBlaze]

Cool story, so when are they going to stop blatantly copying literally everything?
Oh wait

 

[notimp]

Now.

If you read everything - you get a comprehensive understanding how business relations work. Also state/business level relations.

Its worth it.

This is not just me getting enthused. (Moderators please allow. Its not everyday - that something like this comes along.. )

 

[FAST6191]

Pity my Chinese is not so great. Could have some real fun here either making the system untenable or generally doing some black hat shit. Doubly so if we get some nice voice synthesisers -- oh no is your CTO (or the general lynch pins* of your organisation) a secret Falun Gong member and likes to use company ink to spread word of corruption/democracy/... Bit of light shorting if you have access to a market could finance a lot as well.

*I usually find there are a handful of real movers and shakers at a company that you would be hard pressed to replace. If even the accusation would stick...

 

[morvoran]

Social media companies such as Facebook and Google gave been implementing their own version of this in Western culture for awhile now. A quick web search will find several sources about this with more popping up everyday since the media gas become aware of China's version. It's coming our way, folks. Oh, it's coming.

 

[notimp]

For insurances purposes - it was likely. For recruitment purposes it was already there. How the US uses their 'full take' on data - we cant say for certain.

But we still tend to keep our societies more open, and not have people 'collect better social circles' to gain points (well, actually.. ), or at least not to 'spy and report' on everyones activity (chilling effect), as the counter party in a business deal.

Still the trajectories are there, and the similarities (what FB tries to push for (f.e. get data on all money transactions), are there as well.

 

[Xzi]

Social media companies such as Facebook and Google gave been implementing their own version of this in Western culture for awhile now. A quick web search will find several sources about this with more popping up everyday since the media gas become aware of China's version. It's coming our way, folks. Oh, it's coming.

Umm, why would anybody care how Facebook rates other companies? Or for that matter, how they rate individuals that don't even use their platform? Google already has user reviews for businesses, and they certainly don't carry more weight than reviews on other websites (Yelp, for example).

The problem with China's system is the authoritarian government's involvement, and while I'm sure the Trump administration would love to limit our freedom of speech/autonomy of business, that's gonna be a much tougher sell in a country where it's constitutionally protected. Facial recognition systems used for the purposes of law enforcement are a different topic, and a much bigger potential threat to our freedoms in the US.

 

[notimp]

Its correct, concerning the big data approach - with a select group of individuals. In the private sector there are the same private data brokers in the west, that are used (as one data source) in the Chinese system as well. They may be used from a certain responsibility level for a job onwards. For recruitment and assessment of potential - facebook profiles will be screened today. Police use facebook to 'hunt criminals'. People use social media to assess new friend circles and lifepartners. People will use company rating websites to pick out future employers. People use online portals to select their physicians, ... and so on and so forth.

The actual promise of a 'digital assistant" (still one of the goals tech companies are aiming fore), is to deliver you potential ratings (alongside ads), context sensitive.

When you are loosing your job, in my country - your CV will be assessed by an algorithm. Only leaving room for 'individual upgrading' in case of "has shown ambition".

We are there. Its just not compulsory yet. That and some of the 'proactive' and 'chilling' affects of the chinese system - probably never will be implemented in the west - because we would consider it unethical, or unconstitutional.

That said - governments in the west, are very willing to employ so called 'nudging' in legislation - to reach desired effect. And thats data driven a well - just not as coordinated or all encompasing.


For business purposes - when I copied the term "digital hand of the market" - I wasn't kidding. They are literally disabling the free market economy of capitalism. Not just on a basis of 'sector regulation', but actually bringing in another factor that their capitalism works - optimizing alongside it.

Market economies in the west are supposed to be largely impartial - theirs is not - by design.

So that would probably be the last thing that changes, if it ever gets more accepted in the west. But everything other than that - already is changing.

 

[FAST6191]

Umm, why would anybody care how Facebook rates other companies?

Ideally. Nobody.

Pragmatically. Quite a few people -- for many businesses of the customer facing variety if you are not on facebook or google's various properties you might as well not exist and if you find yourself shuffled to the bottom of lists (or off the first page as the case may be) then that ends badly. Hopefully facebook continues to take a kicking and have more people leave or only be there for competitions and funny pictures but at this point it is still something to note. Likewise I also would like to see youtube either play nicely again or get replaced by something better but that is probably secondary in all this after maps and search.

China being an authoritarian shithole is scary but that does not mean I take my eye of big tech companies that also wield a lot of power.

 

[Xzi]

Ideally. Nobody.

Pragmatically. Quite a few people -- for many businesses of the customer facing variety if you are not on facebook or google's various properties you might as well not exist and if you find yourself shuffled to the bottom of lists (or off the first page as the case may be) then that ends badly. Hopefully facebook continues to take a kicking and have more people leave or only be there for competitions and funny pictures but at this point it is still something to note. Likewise I also would like to see youtube either play nicely again or get replaced by something better but that is probably secondary in all this after maps and search.

China being an authoritarian shithole is scary but that does not mean I take my eye of big tech companies that also wield a lot of power.

As a business you certainly need some form of internet presence, but a Facebook page is far from a necessity. Especially given that Facebook as a business themselves have a very poor rating with any number of consumer reporting agencies, and any data hosted by them is damn near guaranteed to be sold, stolen, or both.

 

[notimp]

What facebook has lost during the publicity hit was made up by instagram growth (same company) instantly.

When they got fined their billion dollar fee recently their stock price rose.

They've bought out past competitors. Or copied their featureset and pushed them out of market (with snapchat they are still trying).

When france tries to enact a digital tax, it gets put up on the G7 agenda, and the US delegation lobbies it away again.

The thing with companies profiting from the network effect is, that they are actaully likely never to get replaced - because the investment a competitor would have to mount - against a 'free' business model that scales on advertising - is unfinancible. Even not looking at that they would get a worse ad price.

There will not be another technological leap that would warrant a usability change where they could mess up. in the near future

And to outcompete youtube - not even amazon was brave enough to try - and they settled for the twitch approach instead (which has people paying for chatroom access/visibility).

The blatent truth that has to sink in is - that the garage days are long, long over - and you are mostly dreaming of a phantasy, when awaiting a changeover.

The last lockin would be digital payment - if facebook has that under wraps as well - its over. There they now have got pushback by national banks, but they'll work on getting that lobbied away.

Youtube and Facebook also never will get 'better' in terms of customer dreams of what content should be ranked higher or lower, because y<ou dont decide - advertisers do. So if you've copied that statement from some youtubers rant, thats mostly false as well...

Welcome to the here and now.

 

[chrisrlink]

the world's gonna end before this gets fully implimented thanks to rocket man kim and mother russia....and yes your talking to an unstable man who nearly lost everything and doesn't care if humanity lives or dies off (I answered your question before you even asked it)

 

[notimp]

Rocket man doesnt matter. Russia doesnt matter (starts to matter more regionally, or started until recent protests). Diplomacy still has them covered.

Its just the easyness that we go from individual rights (privacy, remember?) to - well, we probably should monior our competition now to retain a good social score - thats actually remarkable.

 

[FAST6191]

As a business you certainly need some form of internet presence, but a Facebook page is far from a necessity. Especially given that Facebook as a business themselves have a very poor rating with any number of consumer reporting agencies, and any data hosted by them is damn near guaranteed to be sold, stolen, or both.

I am not sure about that. While being in Google's search and probably maps for many things is a far more pressing matter I have sat in on enough small businesses of varying types at this point and seen many of them do well with facebook promotions (different codes, used one of the other phone numbers, web analytics showing referrals), take enquiries from it (despite no indication to do that and it actually being annoying as fewer people had access to the account), be communicated to via it from reasonably high paying clients and more besides.
There were others I weaned off advertising with Facebook, got things stuck on those post to 15 different social meeja platforms with one site type setups leaving facebook another stop on the way as it were, had to get people to spend less time on such things and more time on others (usually by demonstrating the opposite to the things mentioned above), occasionally locked down the page to lessen contact but UK wise (yelp is not really a thing here, indeed the yellow pages as they are known are morons* and are fading fast) it would be said to be a bold move to not have your business on facebook if your customers are the general public, and if you are a restaurant or clothes shop even more so. Restaurant wise the only people to give me more grief in general were tastecard and trip advisor.
Doing for a restaurant directory/reviews company I also noted a large amount of restaurants either having their website as a placeholder and all the action going on facebook or simply only having a facebook (though this was more often than not just the village/estate chip shop, Chinese or curry house, though as I was dealing with them then many were getting awards).

*I have previously covered my story wherein I spoke to their graphics and web services division about the unholy image format I sent them of a client's logo and whatnot (I recall where I was when I got the call, 2013 according to my accounts). The format in question... PNG. It was that same year that they also lost all their other customers among my other clients (most actually not from my experience there or my prompting).

 

[morvoran]

Umm, why would anybody care how Facebook rates other companies? Or for that matter, how they rate individuals that don't even use their platform? Google already has user reviews for businesses, and they certainly don't carry more weight than reviews on other websites (Yelp, for example).

Facebook - Potential and current employers, insurance companies, credit card companies, etc. can and have used people's facebook profiles already to judge them based on the material they post.
Google/Youtube - Google can add you into their search engine so anybody can type in your name and pull up arrest records, personal blogs, even forum posts on extremist websites. The videos you share can be used to target you for hate/death threats and can be used to silence you if you do not fit into Google's "preferred speech".
Twitter - people have been fired or lost job opportunities for posts made years ago.

These all seem like social credit profiling to me, but what do I know?

Right now, I, personally, can't confirm that they are giving "ratings" to individuals, but that is a possible next step.

I also said nothing about rating companies. Not sure why you brought that up.