Big news: Central government completes first round of corporate social credit ratings

China’s central government has completed its first credit evaluation of 33 million Chinese businesses.
Social Credit System China: Corporate Social Credit Ratings

According to a new release by the National Development and Reform Commission (NDRC – the state body responsible for the implementation of China’s social credit system), China’s central government has completed its first credit evaluation of 33 million Chinese businesses.

Recent policy has made mention of a “Comprehensive Public Credit Rating” (公共信用综合评价), a national corporate credit score which would at least partially decide how companies would be treated under differential regulation. But exactly what the rating would look like, and whether or not it would be the final word on a company’s credit, has been up for discussion.

So, what will the rating look like?

Companies will be issued one of four grades:

  1. Excellent (优)
  2. Good (良)
  3. Medium (中)
  4. Poor (差)

What happens to companies at each Comprehensive Public Credit level?

Market entitles whose evaluation results are “excellent” and “good” will be told to keep up the good work. For those whose evaluation results are “medium”, the government will organize briefings and special training sessions to stress the importance of credit management. But:

For market entities whose evaluation results are “poor” … the leading department of the city or county social credit system will cooperate with the appropriate industry regulator to conduct an in-person warning interview with the person in charge to inform them of the evaluation results and [the specific acts of dishonesty that resulted in this score]. [The interviewer should clarify] credit repair channels and urge [responsible personnel] to immediately rectify their credit. At the same time, the interview should be recorded (including refusals to participate in an interview or non-compliant interviewees), and incorporated into [the company’s] social credit record and pushed out to the National Credit Information Sharing Platform.

(Don’t know what the National Credit Information Sharing Platform is? Read our explainer here.)

Is the national rating the only one that matters?

No. While the national-level rating will be used as a foundational corporate credit evaluation metric (especially in cases where no other evaluation has been made on a company), ratings issued at the city and provincial levels will trump the national score:

[Social credit regulators] at all levels should … take the national-level results as the basis for the classification in various industries and fields, [and also consider] the results of industry credit evaluations, local credit evaluations and market-based credit evaluations.

…The national-level results are only used as a foundation for basic evaluation, and do not replace credit evaluations at the local and industry levels.

The idea here is to combine evaluations from multiple credit rating parties – national government ratings, local government ratings, industry ratings, and private third-party ratings – to get a complete and accurate read on a company’s credit:

Credit evaluations should be based on the results of evaluation at the national level, [but also rely] on the richer credit data from local regions and specific industries.

The leading [social credit regulators] at all levels should … support third-party credit service institutions to carry out various forms of market-oriented credit evaluation, and achieve accurate “credit portraits” supported by big data.

Where is the government publishing Comprehensive Public Credit Ratings?

There’s currently no consolidated place to search these ratings. Various credit-related government websites are publishing lists of the best- and worst-rated companies in batches by industry. For example, here are the published results for the most recent batch of ratings in the natural gas sector, including specific lists of those companies rated “excellent”, and companies rated “poor”.

For those companies whose ratings are either “good” or “medium”, credit inquiry services will be gradually rolled out on government-run credit websites.

Who’s making the evaluations?

The evaluations were made by the National Public Credit Information Center of the State Council, in partnership with big data institutions.

The government is still taking feedback

In view of the fact that Comprehensive Public Credit Scores are still in the launch and improvement stage, social credit regulators at all levels should unblock feedback channels for market participants … by holding symposiums and opening online columns.

Local social credit regulators are urged to report feedback to the national government by the end of October.

The bottom line for companies operating in China

  • Don’t get hung up on credit scores. All social credit scores, regardless of who issues them, are based on credit records. Keep your credit records in good shape, and scores should reflect that.
  • If your company is invited to provide feedback on the ratings, take the opportunity to help shape the system in its early stages.
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