Article: What is the Social Credit System?

In Education, Social Credit by TechnoOwl

What is its intended Purpose & Why was it proposed?

Many of you have probably heard about the “Social Credit” system being developed in China particularly from western media. However, “Social Credit” is a product of bad translation between Mandarin an English as “Social Credit” in English sounds like a credit score on your social media or social interactions, however, this is not the case. The Mandarin meaning of the phrase is more closely related to Socialism. A “Socialism Credit” but that doesn’t make much sense in English. It is a Credit Worthiness rating system very similar to that of the ones in the West. Think “Credit rating with Socialist Characteristics”. Here is one list of relevant documents on the planning of the social credit system. A reader of this will note that the focus is not on controlling dissent or influencing your social media like western articles have suggested, but rather towards building a regulatory framework around financial activities and legal compliance.

So, you may be wondering, if it’s just a Financial Credit Worthiness Rating system, why not just use one identical to the rest of the world. Well that is because only 30+ years ago China was a poor country with no financial industry or credit systems. As China grew Chinese culture ingrained in the people to save, save, save and never live past your means, like take on debt. In 2016 China had a Household Savings Rate of 36.1%. Which is one of the highest in the world.

For comparison, here are some other 2016 world economies Household Savings Rate:
South Korea: 7.2%
Japan: 2.4%
United States: 4.9%
Australia: 8.9%
Germany: 9.6%
Switzerland: 17.8%

Because of this extraordinarily high savings rate, and the advent of digital payment systems in 2004 with Alipay and then WeChat pay in 2011 Credit Cards while still used and commonly accepted are not commonly used and never caught on with the majority of the public in China. By 2012, only 25% of Chinese consumers had a credit card. By 2015 50% of consumer payment transactions were being done from mobile payment platforms. Because of this, most Chinese consumers don’t have a credit history to build a traditional credit score on. However, I would like to point out that in recent years there has been a rapid increase in credit card/consumer debt usage. So the government’s idea to solve the gap in determining people’s creditworthiness was to create a creditworthiness rating that takes in factors such as other governmental public data like rent payment, delayed payment to common reserve fund, defrauding/cheating the healthcare fund, common reserve fund, wages, embezzlement charges as well as on top of your financial credit history. In around 2016/2017 the Chinese government gave a number of private corporations licenses to create their own Social Credit scoring systems with whatever available data they had to test out the idea.

Privately Owned Social Credit Systems

The fundamental misunderstanding derives from that a handful of firms have been given the initiative to test credit systems. These firms, being limited in data available, generally utilized whatever information was handy combined with wacky promotional campaigns (such as airport lounge access, sharing to boost scores, etc) in order to advertise their highly experimental “credit” products and compete for market share. The system developed by Alibaba, for example, utilizes its available online transaction data in order to build a system analogous to eBay buyer ratings. This does not ascertain that the national system will track your online purchases or that sharing your score publicly will increase it, though both have been widely repeated in a misleading context.

In the only two years that this test ran, a number of privately-run Social Credit systems created from technology companies around China. These companies went to great lengths to scrape their databases for user data to build scores. Such as Zhima credit, Sesame Credit, and others. However, it was soon revealed that these companies were scraping consumer data without consent.

The privately-run pilots, which monitored spending patterns but also personal behaviour and social media activity, initially raised concerns about consumer privacy. Some of their metrics were seen as irrelevant, including proposals to factor in exercise routines or what time of day people went online. Others were considered more sinister, such as efforts to rate “honesty” or “trustworthiness” by linking credit scores to friends’ social media posts. This promoted public backlash over these, and in response, the government ordered all companies involved with the pilot project to either stop operations or make the scores opt-in only. This, however, caused most of them to collapse, with ones like Zhima credit, Sesame Credit being one of the few remaining. In July of 2017, the Chinese government ordered the complete suspension of the pilot project and stopped issuing new licenses for it citing that these privately-run pilots were a conflict of interest for what Credit System was intended to accomplish.

Media Coverage

Much has been written on China’s Social Credit System in western media, including often inaccurate portrayals attributing the denial of some citizens’ ability to buy high-speed rail and flight tickets to a ‘low social credit score’. Media coverage of the “Social Credit” system in the west has been that the Chinese government is implementing a draconian, totalitarian, all-seeing numerical score that will dictate all aspects of a person’s life and anyone that says or does anything the government doesn’t approve of will have the social credit score reduced. These articles form a long list of publications failing to differentiate what is factually known about China’s credit score system and what is speculation by the authors or their selected sources which were looking at the flawed privately-run credit scores. There’s a strong tendency to conflate or misrepresent the primary purpose of the system, which is to enable lending to hundreds of millions of Chinese lacking collateral or financial histories for small business loans or consumer credit.

Future of System

The government has shifted its focus back to a more government-run Credit system because in 2018 they restarted the Social credit pilot project but the organizations with licenses now were municipal governments. Xiamen and Fuzhou, two cities in Fujian province, a region on the coast in the southeast most famous for its historic trader links and global diaspora population, became one of just a handful of cities in China with their own city-level personal credit scores (个人信用评分). These are algorithmically created scores, using data gathered by the local government to assess citizens’ level of “promise-keeping” (守信), that can be used at places like hospitals and tourist sites, or when paying school tuition fees and borrowing books. The scores are computed based on “Big data” i.e. data collected by respective city’s Public Credit Platform (公共信用信息分享平台) that aggregate citizen and firm credit data from various government ministries, public bodies, and state-owned enterprises in the city. For example, Fuzhou’s platform collects data from over 630 such entities. The data broadly is classified into includes 4 types, as specified in each city’s credit platform management provisions:

  1. basic data: education, employment status, occupation, marriage status, professional qualifications,
  2. positive credit: government conferred honors, contributions to public welfare,
  3. notices: over-due loans, utility payments (water, electricity, etc),
  4. bad credit: legal violations (civil, administrative, criminal).

This also means that in these two cities people’s scores are not impacted at all by data from the private sector. So, for example people’s online purchases or social media posts, has no impact on the score. Some of the key areas that would boost scores into the outstanding credit include: a citizen’s timely contribution to the city social security or insurance fund; activities such as volunteering, donating blood, using public transport, separating waste; The scores are computed using models not very dissimilar to existing credit scoring models that have been in use globally. In fact, Xiamen uses the FICO score model — used in the United States by mainstream credit rating agencies to assess financial creditworthiness but remixed with a different set of variables. Fuzhou uses a slightly different six-variable model. As of September 2019, Fuzhou has 1.7 million registered Moli score users (roughly 21% of the city population) and Xiamen has just 210,059 (roughly 5% of city population).

How do citizens lose points? and what happens to those with low scores?

There is a range of things that citizens can do to lose points, all of which involve breaking a law. A document published by Fuzhou NDRC in November 2018 listed nearly 50 such offenses, from 16 ministries, that range from minor (5–10 points lost), moderate (15–20 points), serious (30–50), and extreme (100–150). The top three ministries with the most number of proposed offenses are the Traffic Police, Common Reserve Fund, and Committee for Urban management. Traffic Police and the Common Reserve Fund also have the most serious offenses with an average points deduction of 62 and 70 respectively per offense. A person would only have their Moli score docked once the relevant data about their offense reached the public credit data platform via the government body they are formally charged by.

The combination of incentives and disincentives, aka carrots and sticks, is critical to any system such as these which seeks to bring gamification to governance. The carrots, in this case, take up added importance as being denied access to carrots become the only punishment when there are no sticks for citizens with low scores. For example, in either city, a citizen would face the same legal penalties associated with their charge, the only difference is now the benefits unlocked by high scores are off the table.

In its present iteration, the scores seem more like a government version of a commercial loyalty program — all citizens get access to the basic service however some can opt-in for fringe benefits for convenience and comfort. So far, the system has been developed through a combination of regional administrative rules and regulations, further evolution of the system depends on how the central government solves difficult questions like defining what ‘social credit’ or ‘trustworthiness’ is in a legal sense. There is an evolving but nascent public discourse around what it means to be ‘trustworthy’ and how fair, necessary, or useful such a system is. The public’s concerns over the lack of transparency around scoring, and processes to amend or update data, are likely the most immediate areas of concern.

Other challenges include data protection, legal liability, consumer privacy, and ethics. Tackling this will take several more years and certainly not by 2020, the final year of the State Council 2014 planning document. At which point the State Council will issue a new planning document for it as the project in 2019 is still in its infancy and nowhere near ready. Contrary to the opinions in the West who say it’s already in effect and everyone already has one. But it is coming, at some point in the future, but when it does finally get implemented it won’t be the scary monster from “Black Mirror” but more a scoring system on “promise-keeping” as was it’s original goal of trying to determine a person’s worthiness in keeping their promise to repay credit.

More Reading
  1. (Foreign Policy) China’s Orwellian Social Credit Score Isn’t Real – Blacklists and monitoring systems are nowhere close to Black Mirror fantasies.
  2. (Wired) How the West Got China’s Social Credit System Wrong – It occupies a spot next to ‘Black Mirror’ and Big Brother in popular imagination, but China’s social credit project is far more complicated than a single, all-powerful numerical score.
  3. (Logic Magazine) The Messy Truth About Social Credit – Foreign media has painted a dystopian portrait of China’s social credit system. The reality is both less coherent and more complex.