With its social credit, China now classifies good and bad companies

Evaluated, rated, sanctioned ... or rewarded. In China, the vast social credit system that is gradually being set up has given rise to many fantasies and controversies in the West about the alleged techno-authoritarian excesses of a regime wanting to monitor and control the actions of its population.

But individuals are not the only ones to be in the sights of a Chinese Big Brother who wants to classify them as good or bad students. Companies too, warns the European Union (EU) Chamber of Commerce in China in a very detailed report on the social credit system in the business world, published Tuesday, August 28.

300 criteria in 30 domains

In fact, Beijing seems even more eager to note companies than individuals, says this institution. The measures specifying the rating criteria, the fields of application, the type of possible sanctions have multiplied since the beginning of the summer with the clear objective of having a fully operational system in 2020. More than 350 regulations at national level and nearly 1,000 at the local level were adopted to specify how the companies would be rated. In comparison, "the social credit system for individuals is only in pilot project phase," say the authors of the report.

The system, whose beginnings date back to 2013, is already in many ways already a reality for companies operating in China. Whether Chinese or foreign, a company is already rated on about 300 criteria in thirty areas, such as taxation, environmental protection, working conditions and product quality. It must regularly provide financial data to supervisory authorities, cameras are installed within factories in some provinces to check work rates and compliance with regulations, and quality checks can be made unannounced.

Sanctions vary according to the offense. They can range from raising taxes to simply banning doing business in China in the worst cases. Local leaders do not escape the vengeful arm of the authorities and may suffer, for example, a ban on buying real estate. Between 2014 and 2018, more than 3.5 million companies had been sanctioned under this social credit system, says the South China Morning Post, the main English-language daily in Hong Kong.

Artificial intelligence and big data

The best students can, for their part, enjoy tax benefits or be favored when awarding public contracts. But "the rewards component remains less precise than the one concerning the sanctions", regrets the Chamber of Commerce of the EU in China.

It only remains to add the technological layer so that everything works according to the desires of Beijing. At the moment, sharing information between the ten or so entities that apply the criteria and distribute the good and bad points is not very effective, the report's authors note. In addition, the collection of information would gain in speed by adding a pinch of artificial intelligence here and "big data" (data processing in large numbers) there. These technologies make it possible to cross information quickly and to constitute a gigantic central file that will become the keystone of the social credit system. The EU Chamber of Commerce in China also believes that artificial intelligence at the levers would be less arbitrary in its notes than a human controller ...

But who would like to do business in such a techno-bureaucratic environment, wonders the German daily Süddeutsche Zeitung? For the report's authors, the social credit system could, in fact, favor Western multinationals. "They often have better governance structures than their Chinese counterparts," notes the document.

Stay in control of the Chinese economy

This social credit system for businesses is not, however, a gift offered by Beijing to major international groups. It is, in fact, "a prerequisite for the economic opening of China," says the EU Chamber of Commerce in China. Until now, a foreign company had to agree to form a joint venture with a Chinese group to gain a foothold in the Chinese market.

Beijing is gradually abandoning this model to attract more foreign investors by developing, especially, the "special economic zones" since 2014 ... the year when China began to organize its social credit system for businesses. This is not a coincidence: the regime hopes to compensate for the control over foreign companies it loses by loosening some economic screws with a continuous rating submitted to all companies. "Social credit is the tool that allows central authorities to ensure that only groups that prove they are trustworthy can do business in China," summarizes the report of the EU Chamber of Commerce in China.

This device can also be used as a weapon in the Sino-US trade war. A new regulation, adopted in July 2019, provides for the establishment of a specific blacklist system for companies that "endanger the national interest" or "violate the legitimate rights of consumers and the public". Concepts vague enough to be brandished by the Chinese authorities to the first commercial crises came.

The EU Chamber of Commerce in China advises foreign companies to quickly take these changes into account so that they do not run out of steam when the social credit comes into effect. Its chairman, Jörg Wuttke of Germany, has admitted that "it is not inconceivable to think that this device will give Beijing a right to life and death over all companies in China".