China wants to track and grade each citizen’s actions — it’s in the testing phase

People walk past the Public Credit Information Service Hall in Suzhou, China, on May 6, 2019. Suzhou was one of several places chosen in 2018 by the Chinese government to run a social credit trial, which can reward or punish citizens for their behavior.

Qilai Shen | Bloomberg | Getty Images

The Chinese government is forging ahead with official efforts to create a national social credit system, even as several academic analysts doubt whether authorities can ever reach that goal.

Beijing affirmed its commitment last month to building out social credit, a plan which has sparked fears that the government will gain overt control over ordinary people’s lives. At its core, the proposed system tries to create a standard for trust by tracking individual actions across Chinese society, and rewarding or punishing accordingly.

It’s unclear how fairly such a system could impose penalties on individuals, or how easy it would be to get off blacklists. Still, authorities already claim to have the records of 990 million individuals and 25.91 million enterprises, as the central government runs up against a self-imposed 2020 deadline to formulate a nationwide social credit plan that includes the capital city.

Since the push to build a social credit system kicked off in earnest five years ago, a few dozen pilot programs have emerged with varying tracking metrics, and consequences for violations. In many respects, the measures are China’s attempt to manufacture a more law-abiding society in a country where respect for contracts has a far shorter history than that of the U.S. or England.

Nevertheless, the trials have sparked concerns.

Worries about misuse

The overarching concern, whether or not a social credit system reaches national scale, is the potential for abuse.

China has a far from stellar human rights record. Earlier this month, 22 countries issued a joint statement calling on the world’s most populous nation to “refrain from the arbitrary detention and restrictions on freedom of movement” of ethnic minorities in Xinjiang. The region in the westernmost part of the country is known for intense surveillance and is where the United Nations last year said more than a million people were being held in “counter-extremism centres” and another two million were forced into “re-education camps.”

Especially as technology develops, a social credit system has the potential to be far more invasive, with few checks on its power in authoritarian China. Still, the country hasn’t crossed that threshold yet.

“At the moment, the negative consequences (e.g., the sticks, not the carrots) are only carefully used, and if, only to those businesses and individuals, who clearly broke a law,” Genia Kostka, professor of Chinese politics at Freie Universitat Berlin (the Free University of Berlin), said in an email.

“So the consequences are not huge at the moment,” she said, “but the system is developing fast and more sticks can quickly be added to the system once it is running.”

That sentiment was echoed by the Economist Intelligence Unit, which said in a Monday report that “the social credit system is set to become a steadily more important aspect of daily life in China, including while doing business.”

It’s not yet a sure thing

For now, however, it remains to be seen how far-reaching the social credit system will be in practice, or when it will be implemented nationally. In fact, there are some who doubt it will ever realize its stated goals.

“The social credit system is such a sprawling endeavor that it may never actually be ‘done’ in any meaningful sense,” said Martin Chorzempa, research fellow, at the Washington-based Peterson Institute For International Economics. He is a co-author of the June 2018 report “China’s Social Credit System: A Mark of Progress or a Threat to Privacy?”

“They are years away from having some system that integrates all government data and data from the private sector into a unified nationwide system with a single score, and they may never actually achieve that because of bureaucratic infighting over data and growing privacy concerns, “ Chorzempa said in an email to CNBC last month.

Launching social credit in the capital city would be significant for the country, but little has yet been divulged about Beijing’s plans to establish individual scores for permanent residents by the end of 2020, as was announced in November 2018.

The major government entities involved in creating the China-wide system, the National Development and Reform Commission and the People’s Bank of China, did not respond to CNBC requests for comment. The Municipality of Beijing also did not respond.

Currently, social credit is tied to a handful of disparate initiatives. One is the stringent garbage sorting regime that took effect in Shanghai this month, according to city regulations that were adopted in January. It’s not clear to what extent individual scores will be affected by adherence to the rules, although the Communist Party newspaper People’s Daily noted that in Xiamen, multiple violations of similar waste management statutes land individuals on a so-called blacklist. It was not clear from publicly available resources what that list does.

Of various government efforts to track individuals in China, the Supreme People’s Court system of issuing travel restrictions for anyone who defies a court order is the most widely used, the EIU report said. These cases typically involve unpaid debt, and prevent offenders from taking flights or traveling by high-speed rail.

Critics say such punishments are not enough to prevent fraudulent behavior, while the consequences would be rather extreme if tied to, say, a few improperly sorted pieces of garbage.

Low awareness in China

Despite the many pilot programs and government-run websites such as “Credit China,” the Chinese public so far generally does not know much about the country’s plans for social credit.

Dev Lewis, research associate at Digital Asia Hub, said last month that most people he spoke with in Xiamen and Fuzhou did not know such scores existed, and that less than 4% of people in Xiamen had signed up.

Lewis’ findings match other recent news reports about how few people in China actually know about a social credit test that is happening in their own city. However, while he noted that more rewards for high scores could improve awareness, other academic research and anecdotes indicate many in the country favor a system that steps up punishments on wrongdoers.

“An algorithm with public criteria is more transparent than systems depending on human, possibly corrupt decision making, and it is supposed to supervise officials too,” Peterson Institute’s Chorzempa said. “There is a real problem with lack of rule of law in China that affects everyone, and lets people off (without punishment) when they’ve done terrible things.”

The Chinese government’s push to move forward with social credit, and launch a system in Beijing, is part of the powerful State Council’s announcement in 2014 of a “Planning Outline for the Construction of a Social Credit System.” The document called for nationwide, uniform credit information collection, and for the regulations to be established by the year 2020. The council noted e-commerce, logistics and statistics as areas in which to use a credit system to build “social sincerity.”

The idea for such a program has a longer history. The first well-known test for a local social credit system in China launched back in 2010 in the rural county of Suining in the province of Jiangsu.

As much as modern China has moved toward an increasingly rigid system, the local environment was vastly different just half a century ago.

During the decade-long Cultural Revolution that began in the late 1960s, “Mao’s word was the law, like that of the emperors who preceded him,” Weijian Shan, CEO of investment firm PAG, wrote in his 2019 book “Out of the Gobi: My Story of China and America.”

“Even now (in the 1980s) that the chaos of the Mao era had ended, laws, policies, and rules were subject to change, sometimes arbitrarily or quite suddenly,” Shan said. “There was a common expression in China at that time: ‘ji hua (a plan) cannot catch up with bian hua (change).’ The resulting uncertainty and risk necessarily led to greater social costs. “

Testing phase

To get a sense of the scale the Chinese government is currently working on, here are some details about nine regional trials of the social credit system:

1. Suining, Jiangsu — a primarily agricultural and industrial county with a population of 1.45 million.

  • Base score of 1,000 per citizen.
  • Points are deducted for drunk driving, not paying back loans, having more children than allowed by law, among other violations, according to a May 2018 paper by Rogier Creemers, a researcher at Leiden University in the Netherlands.

2. Rongcheng, Shandong — city of about 740,000 residents on the easternmost tip of the province, by the Yellow Sea.

  • Base score of 1,000 per citizen or company, along with a letter grade ranging from AAA to D, according to a February 2018 report from Credit China.
  • Some benefits of a high rating include renting bikes without paying a deposit, discounts on winter heating, and more favorable loan terms.

3. Hebei — a province of about 75 million residents in northern China, surrounding the municipalities of Beijing and Tianjin.

  • In January, Hebei Higher People’s Court released a mini-app on messaging application WeChat that allows users to check for debtors in the vicinity of 500 meters, alert authorities and share the information with friends on WeChat.
  • The stated purpose of the app is to create “a social environment in which everyone knows the law, understands the law and abides by the law,” according to a CNBC translation of the online Chinese description.

4. Ningbo, Zhejiang — major city in one of China’s most affluent provinces.

5. Hangzhou, Zhejiang — home to tech giant Alibaba and its affiliate Ant Financial, which runs the Alipay mobile payment system.

  • The city launched its “Qianjiang points” system through a Hangzhou app in November 2018, with plans for benefits such as fitness centers and parking reservations, according to a government announcement.
  • The 1,000-point system is divided into five levels and applies to individuals at least 18 years old who are living or working in the city, according to a local news report. A score of 700 to 750 is considered “outstanding,” the article said.

6. Yangqiao, Zhejiang — a village located about a three hours’ drive southwest of Hangzhou.

  • An individual can earn a maximum rating of three stars in a “Morality Bank ” program. That’s based on attributes such as filial piety or good deeds, according to a local news report from August 2018.
  • A higher rating can mean better loan terms from the local bank, the report said.

7. Dengfeng, Henan — a county on the edge of the provincial capital, in the central part of China.

  • In June 2017, the city’s People’s Court partnered with telecom companies such as Dengfeng China Mobile and China Unicom to create an automatic phone message for individuals who refuse to comply with court orders to repay loans, according to a report carried by state news agency Xinhua.
  • Upon phoning such people, the caller will hear an audio message saying “the person you are calling has lost his credit and deemed a defaulter by Dengfeng City People’s Court,” the article said.
  • The audio message then tells the caller to urge the defaulter to fulfill his legal obligations, the report said.

8. Suzhou, Jiangsu — a city of 13 million west of Shanghai known for its classical Chinese gardens.

  • Base score of 100, but points can be added to hit a maximum of 200 for good behavior, according to a July 2018 report from Credit China.
  • Citizens with high scores enjoy discounts on public transport and free deposits when borrowing public bicycles, the report said.

9. Wenzhou, Zhejiang — a port and industrial city with a population of 9.25 million.

  • Social credit is linked with financial credit to give businesses deemed more reliable better access to loans, according to a February 2018 report from Credit China.
  • The city has established blacklists for those facing punishment, and “redlists” for those deemed worthy of rewards.

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