Far From a Panopticon, Social Credit Focuses on Legal Violations

Introduction

Two new pieces of draft authority on China’s social credit system, directories of data inputs and punitive outputs from the General Office of the State Council, provide further clarity into the system’s ultimate form and purposes.[1] These official guidance documents present a picture of a social credit structure that is more of a bureaucratic interface for existing legal and regulatory systems than the widespread Western perception of a dystopian algorithm that uses “big-data collection and analysis to monitor, shape, and rate individual’s behavior”(China Brief, January 17, 2017). Social credit includes new enforcement mechanisms but is an extension of the law rather than an independent rule-making authority. Furthermore, the new draft guidance documents emphasize that all collection of data and imposition of punishments requires a legal basis.

The Social Credit System in Practice

No national-level authority has defined ‘social credit’ yet, but high-level regional regulations uniformly describe it as an organization’s or individual’s record of compliance with laws and legal obligations. (for example, see ”Shanghai Social Credit Regulations”, August 17).This is something of a departure from the earlier 2014-2020 planning outline, which used “social credit” as a blanket term encompassing three major aspects: a financial ‘credit reporting’ system, an administrative ‘credit regulation’ system, and a propaganda campaign aimed at increasing individual ‘creditworthiness’.[2]  

The ‘credit reporting’ (征信, zhengxin) component, like credit elsewhere, is concerned with measuring individuals’ likelihood of meeting their financial obligations. Many in China remain unbanked, with no personal accounts or borrowing history, and the goal is to extend the credit economy to them by exploring alternative financial risk indicators. The ‘creditworthiness’ (诚信, chengxin) component is part of China’s ‘core socialist values’ campaign that attempts to fill a perceived moral void and foster individual trustworthiness among the public. Publicity surrounding creditworthiness and education focuses on promoting tales of good samaritanism and compassion through all aspects of government. (Examples can be found in the “Stories of Creditworthiness” section of the governments’ “Credit China Website’, Credit China). Work on these two elements has progressed increasingly independently, both from each other and from ‘credit-regulation’ (信用监管, xinyong jianguan), which has emerged as the key pillar of the social credit system and is the exclusive focus of regional social credit regulations.

At the heart of credit-regulation is the concept of hierarchical and categorical management, which means the extent that regulatory agencies scrutinize market actors is based on their past compliance with laws and regulations, and the nature of the industry or field involved.[3] It is not surprising, then, that the system is almost entirely concerned with regulatory and enforcement information created or obtained by government agencies in the performance of their normal duties, collectively referred to as Public Credit Information (PCI) (公共信用信息, gonggong xinyong xinxi). This includes legal records such as registration filings, professional licenses, court judgments, criminal and administrative penalties, permits, and inspection results. (NDRC, July 13) PCI and voluntary disclosures are the sole basis for national credit appraisals that rate a market entity’s overall legal compliance as excellent, good, fair, or poor. [4]

A new draft catalog of PCI seeks to further standardize the information that is collected and used in credit-regulation. Most PCI is relevant only to businesses; the use of PCI about individuals is more limited, usually relating to their position in an offending organization. Information on juveniles and others with limited capacity is entirely excluded, as is information on religious faith, or data concerning personal privacy, absent an express legal basis.[5] Records of minor legal infractions such as public transit fare skipping and running red lights, which some local social credit schemes had included as PCI, may only be considered where there is a finding that the situation was particularly serious or demonstrated malicious intent. Credit-regulation is intended to help regulatory agencies allocate resources appropriately and to reduce the burden on entities with a history of compliance, so information that does not help anticipate the likelihood of violations should be excluded as a distraction.

In order to further increase its efficacy, credit-regulation also focuses on information sharing and joint enforcement by including PCI in centralized databases and sharing blacklists of more serious offenders.[6] Agencies for different sectors were instructed to create rules for administrating blacklists for violations of the laws under their jurisdiction, including determining standards for entry and removal from the respective industry’s blacklist, and the consequences of being blacklisted. Each sectors’ blacklisting rules are not only made public, but must also be released for public comment for 30 days before they are adopted.[7] Moreover, entry into a blacklist must be reserved only for the most serious violations of the law that endanger health and safety, disrupt the marketplace, violate a judicial or administrative order, or involve a refusal to perform national defense duties.

Through a complex series of inter-ministerial memorandum of understandings, the various agencies have agreed to take enforcement action against those blacklisted by other agencies. Cross-agency enforcement is not intuitive and because other agencies usually lack motivation or legal authority to directly punish those who have not broken laws in their jurisdiction, the penalty measures tend to be restrictions in the exercise of their discretion, such as decisions to grant permits, and are rarely outright prohibitions.

A major exception is a unique blacklist operated by the courts. That blacklist focuses on ‘judgment defaulters’, who are defined as persons with the ability to fulfill obligations given to them in an effective court judgment, but who refuse to do so, or who otherwise illegally evade enforcement such as by concealing assets. This was the first blacklist, begun in 2013, and due to the courts’ pre-existing power to limit spending by those with outstanding judgments in order to preserve assets, requires other agencies to enforce other more direct restrictions, which have attracted international attention, such as blocks on purchasing flights, home renovations, vacation travel, and even sending children to expensive private schools. [8]

The State Council’s draft directory of national credit penalty measures now lays out the potential consequences included as social credit but clarifies that any penalty must have an articulated basis in law and policy documents.[9]The punishments include professional restrictions on obtaining practice credentials, holding specified positions, and even industry exclusions for more serious offenses. Other measures involve restrictions on participation in government projects, procurement, and resource trading, or access to government benefits. The most commonly imposed measures are increased scrutiny in routine regulatory oversight or when applying for permits, and the publication of information on infractions that may be viewed and considered by both government agencies, market entities, and the public, which is considered its own penalty. Different regions and industries are able to draft their own supplemental penalty catalogs, but must never increase penalties beyond those provided by local laws and regulations.

While the draft penalty directory is new, its principles are not. Interagency enforcement agreements have always come with attached lists of the legal basis for every punishment included. The specific types of penalties have been consistent throughout the joint-enforcement system’s evolution, and the directory itself was called for as early as 2016.[10]

Conclusion

Despite widespread interpretations to the contrary, social credit is not an all-seeing citizen-rating system. The perception of an all-seeing social credit system likely stems from early analyses that conflated the credit-regulation enforcement mechanisms with morality propaganda aspects, and further confused pilot private financial credit score systems with government regulation. The government had tentatively authorized major technology and finance companies to develop the systems, but ultimately rejected them. Hyperbolic promotion by corporate spokespersons about their scores’ predictive abilities may have also resonated with Western anxiety surrounding corporate data profiling and government access to personal information.

The actual social credit system is not without real problems of course. The central authorities have released increasingly detailed rules for ‘credit restoration’,  but some individuals have reported being blacklisted without receiving required notice or have experienced problems getting unlisted despite their eligibility for removal (State Administration for Market Administration Regulation Rules, July 9). More importantly, saying that the system is an extension of the law only means that it is no better or worse than the laws it enforces. As China turns its focus increasingly to people’s social and cultural lives, further regulating the content of entertainment, education, and speech, those rules will also become subject to credit enforcement.

Similarly, while social credit’s mechanisms are decidedly not tech-intensive, this does not mean there is no need for concern about China’s use of emergent technologies in areas such as censorship, surveillance, or predictive policing. It only means that continuing to describe social credit as futuristic mechanism for regulating citizens’ daily lives is a needless distraction from the many areas of more legitimate concern.

Jeremy Daum is a Senior Fellow of the Yale Law School Paul Tsai China Center. His principal research focus is criminal procedure law, with a particular emphasis on the protection of vulnerable populations such as juveniles and the mentally ill in the criminal justice system, and is also an authority on China’s ‘Social Credit System’. He is also the founder and contributing editor of the collaborative translation and commentary site Chinalawtranslate.com, dedicated to improving mutual understanding between legal professionals in China and abroad.

Notes

[1] National Basic Directory of Public Credit Information (Draft) (全国公共信用信息基础目录 （征求意见稿) , National Reform and Development Commission, July 13, 2021_https://hd.ndrc.gov.cn/yjzx/yjzx_add.jsp?SiteId=365; and China’s National List of Basic Penalty Measures for Untrustworthiness (Draft for Solicitation of Comments) (2021 Edition) (全国失信惩戒措施基础清单) (征求意见稿), https://www.gov.cn/hudong/2021-07/18/content_5625819.htm

[2] State Council Notice Concerning Issuance of the Planning Outline for the Establishment of a Social Credit System (2014-2020) (国务院关于印发社会信用体系建设规划纲要（2014—2020年）的通知) State Council General Office Issuance [2014] No.21, June 27, 2014.  https://www.gov.cn/zhengce/content/2014-06/27/content_8913.htm

[3] See Item (7) of Guiding Opinion on Accelerating the Advancement of the Establishment of the Social Credit System with New Forms of Credit-Based Regulatory Mechanisms (关于加快推进社会信用体系建设构建以信用为基础的新型监管机制的指导意见,State Council General Office Issuance [2019] No. 35, July, 9, 2019, https://www.gov.cn/zhengce/content/2019-07/16/content_5410120.htm

[4] See items (5),(6) in 关于加快推进社会信用体系建设构建以信用为基础的新型监管机制的指导意见, https://www.gov.cn/zhengce/content/2019-07/16/content_5410120.htm;  Notice of the General Office of the National Development and Reform Commission on Advancing and Utilizing the Results of Comprehensive Public Credit Appraisals of Market Entities(国家发展改革委办公厅关于推送并应用市场主体公共信用综合评价结果的通知, [2019〕885号, particularly section VI. https://www.gov.cn/xinwen/2019-09/16/content_5430181.htm

[5] 全国公共信用信息基础目录  （征求意见稿)

[6] Guiding Opinions on Strengthening and Regulating Efforts on the Management of Lists of Persons Receiving Joint Incentives for Trustworthiness or Joint Punishment for Untrustworthiness (关于加强和规范守信联合激励和失信联合惩戒对象名单管理工作的指导意见),  National Development and Reform Commission and the People’s Bank of China, 2017, https://www.ndrc.gov.cn/xxgk/zcfb/ghxwj/201711/t20171103_960925.html?code=&state=123

[7] Further Improving Systems for Restraining the Untrustworthy and Building Mechanisms for Building Creditworthiness that have Longterm Effect (关于进一步完善失信约束制度构建诚信建设长效机制的指导意见), General Office of the State Council, December 18, 2020, https://www.gov.cn/zhengce/content/2020-12/18/content_5570954.htm

[8] For court blacklists see several Provisions of the Supreme People’s Court on Announcement of the List of Judgment Defaulters (最高人民法院关于公布失信被执行人名单信息的若干规定), July 1, 2013, 法释[2013]17号 https://fgcx.bjcourt.gov.cn:4601/law?fn=chl394s051.txt ; Several Provisions of the Supreme People’s Court on Restricting High Spending by Persons Subject to Enforcement(最高人民法院关于限制被执行人高消费的若干规定, Supreme People’s Court, May 17, 2010, https://www.court.gov.cn/shenpan-xiangqing-1650.html

[9] (全国失信惩戒措施基础清单) (征求意见稿), https://www.gov.cn/hudong/2021-07/18/content_5625819.htm

[10] 国务院关于建立完善守信联合激励和失信联合惩戒制度加快推进社会诚信建设的指导意见, May 30, 2016, item 20, https://www.gov.cn/zhengce/content/2016-06/12/content_5081222.htm