What social credit isn’t

There’s a whole lot of misinformation floating around about social credit, and that misinformation has given rise to two fundamental misunderstandings about what the system is and how it works. These have been repeated so often that they’ve been widely accepted as fact. So before we get started, we’re going to take a minute to clear the air.

Myth 1: Everyone in China has a social credit score

Typical story goes like this: Chinese citizens are all issued a numerical social credit score by the central government, and this dictates their place in society. Those whose scores fall to a certain number are ostracized or blacklisted.

But there’s one big problem with this story: there is no national scoring system (yet). That’s right: the central government has not issued a single social credit score to anyone.

There are, however, national social credit records on everybody, which the central government maintains in a master database. Though the database contains lots of information, it doesn’t issue scores.

That being said, scoring is happening in some places. That’s because many different entities are using the central government’s social credit records to test out and implement their own scoring systems. There are three main types of scoring systems based on social credit data.

1. Citizen credit scores

A few city governments are independently piloting programs that use the central social credit database to give city residents a social credit score that’s only applicable locally.

Not all cities in China are running these scoring programs. And to make matters more confusing, in the places that do have scoring systems, scoring scales differ widely from city to city. Some cities rate on a 0-200 scale, some on a 0-1000 scale, so there’s no unified scoring mechanism, and scores can’t really be compared between people from different localities.

This throws a wrench in the “Black Mirror” scenario in which everyone in China judges each other’s human worth based on a point value. If a citizen of Suzhou has a credit score of 175, that would be considered excellent credit under the local system; but under the Hangzhou system, 175 would be considered horrible credit. So, unless the national government decides to start issuing scores – and at this point, there’s little indication that’s going to happen – that particular nightmare won’t come to fruition.

It remains to be seen if every city will eventually have a scoring system, and if those systems will eventually be standardized nationwide. We cover all this in more detail here. But as of August 2019, what’s important for Chinese citizens isn’t their city credit score, but the contents of their national credit file.

2. Corporate credit grades

There are also a few state agencies and industry associations that are issuing grades to companies that fall within their jurisdiction, in the same way that a city health inspector in the US might give a restaurant an “A” rating for running a clean kitchen (more on this here). These grades are also partially based on the data contained in each company’s national credit file.

The state agency grades mostly look at the company’s level of regulatory compliance. If a company has a history of good corporate behavior and follows the rules, they will have a high grade. If they have a history of operational violations, their grade will be low.

The industry association grades mostly look at the company’s service quality and the soundness of its corporate and financial structure. Only companies that are members of the industry association will be graded, and participation in these associations is voluntary.

Again, not all state agencies or industry associations have grading systems at this time.

3. Financial credit scores

Banks will also be incorporating some social credit data into their financial credit records. In the near future, those records will be used by credit rating agencies to issue a variety of scores, both to individuals and to companies, primarily for lending purposes (more on this here).

Social Credit: How social credit scoring works

Blacklists, however, do exist, both for individuals and companies. You can read more about them here.

Myth 2: There’s only one social credit system

The second pervasive myth going around is that there’s only one social credit system in China. There are actually many social credit systems, and those fall into two main categories:

  1. Private social credit systems
  2. The national social credit system

These two things get mixed up all the time, but they’re actually super different.

Private social credit systems are run by private companies. There are dozens of them currently operating in China. These systems are kind of like loyalty rewards programs: they assign scores to the company’s customers, rewarding high scores with perks and discounts. There are no penalties for low scores. They’re also optional: if you don’t want to participate, you don’t have to. These private systems are classified as “social” credit because they base some of their scoring on the consumer’s behavior.

The national social credit system is something else entirely. It’s run by the government. It isn’t fully operational yet, and it’s supposed to officially launch at the end of 2020.

The national SCS is not so much a nationwide scoring system as it is a ginormous, centralized database of credit files on people, companies, and organizations. Credit files include both financial data, like debt repayment history, and behavioral data, like court records and civic acts. There are penalties for poor credit and rewards for good credit. And the system isn’t optional: everyone will have a credit record, whether they like it or not.

The national SCS Private SCS
Run by the Chinese government Run by private companies
Running, but not at full speed yet, still in pre-beta pilot mode Dozens are already operational
No nationwide scoring system – no one has been assigned a national social credit score (yet) Assigns scores to customers and users
Non-optional: everyone must participate Optional: if you don’t like it, you can take your business elsewhere
Includes files on people, companies, organizations, and government departments Only the company’s customers or users are rated
There are penalties for bad credit and rewards for good credit There are only rewards for good credit

This report will focus almost exclusively on the nationwide public social credit system, but if you’re interested, we do include a little info about private SCS in our section on tech platforms.