Why US businesses should be worried about China’s corporate social credit system
- Though it hasn’t been formally launched, the system has already been used to force international firms to adopt Chinese values on politically sensitive issues
- Punishments could include being denied access to cheap loans, higher import and export taxes and key personnel being prohibited from leaving China
Foreign companies that already encounter difficulties in doing business in China are about to face an even starker reality as Beijing steps up plans for a corporate rating system.
Its goal is to keep local governments, businesses and people in compliance with national directives. For international businesses, the programme will look at a host of data including business contracts, social responsibility, regulatory compliance and how many Communist Party members they employ.
Through a centralised platform using artificial intelligence, the system will rate firms for “credibility” or “sincerity”. Blacklisted companies could face punishments that include being denied access to cheap loans, higher import and export taxes and key personnel being prohibited from leaving China.
Foreign companies will be required to hand over to Beijing more data for scrutiny. And the government’s possession of larger amounts of proprietary data and its authority to mete out punishment will give it an even stronger hand in keeping their behaviour in line.
“The real fear of the system isn’t the data being taken,” said Kendra Schaefer, head of digital research at Trivium China, a Beijing-based China policy analysis firm. “The fear is whether or not the data is being applied by a fair hand.”