China Introduces Social Credit Scores For Companies

Chinese and foreign companies will be surveilled, evaluated and assigned a score, which will impact everything from export and import licenses to access to new business opportunities.

While a good score may not necessarily improve a corporation's lot, a bad score can definitely hurt it. JL

Nathaniel Taplin reports in the Wall Street Journal:

A key target of China’s coming “social credit” system, which triggers visions of “1984”-style monitoring of people, is misbehaving businesses. 80% of information on the data-sharing platform relates to companies. Social credit will make falling afoul of regulations more costly. Compliance or noncompliance with important regulations will be assigned a value and fed into an algorithm to produce a company’s overall rating shared across agencies through a central database.A bad rating will have ripple effects. Data will be gathered from company submissions and inspections, but also from video surveillance, instrument monitoring and third-party sources.
A key target of China’s coming “social credit” system, which among Westerners usually triggers visions of “1984”-style monitoring of people, is actually misbehaving businesses. Corporate America needs to prepare.

About 80% of information on the main data-sharing platform relates to companies rather than individuals, according to China consulting firm Trivium. Scheduled for full rollout in 2020, the system could help level the playing field, if well-implemented. But social credit will make falling afoul of regulations far more costly, and could be used as a weapon in trade disputes.

Privacy has always been a narrower concept in China than the West. Chinese-speaking foreigners can expect taxi drivers to grill them about their income, marital status and other matters that strangers in the West usually avoid. And private electronic communications aren’t really private from the government.The flip side is that information doesn’t actually flow well through society. Censorship and a Party-centric court system make whistleblowing difficult and dangerous, creating plenty of opportunities for corporate and official malfeasance. Losers are often small or foreign companies without good official contacts to bend the rules for them.
Corporate social credit is meant, at least in part, to address this problem—without fundamental social changes, like freeing the press, that could endanger Communist Party rule. Compliance or noncompliance with important regulations will be assigned a value and fed into an algorithm to produce a company’s overall rating on, for example, environmental protection. This rating will be shared across agencies through a central database, to some extent publicly.
A bad rating in one area will have ripple effects. For instance, being “distrusted” for customs purposes could affect not only border inspections but governmentwide approvals, currency transactions and the ability of the company’s legal representative to purchase property, according to an August report from the European Union Chamber of Commerce. Data will be gathered from company submissions and inspections, but also eventually from video surveillance, remote instrument monitoring and third-party sources.
In theory, this will make favoritism harder: Computers, rather than people, will decide regulatory penalties and rewards. A less partial system could benefit foreign companies, says Jorg Wuttke, president of the EU Chamber in China. For example, a foreign company with high-quality emissions-control equipment might be allowed to keep producing on heavily polluted days, while local competitors with poor compliance records might not.
There are downsides, however. Compliance costs will rise—and that ripple effect means even minor infractions could cause severe damage. And the evolving requirements will be harder for small businesses to keep track of.
Also, some of the rating factors are political or highly discretionary. For example, under draft regulations released for comment in July, companies could be blacklisted for endangering national or public interest or for “infringing the legitimate rights and interests of customers.” U.S. companies are doubtless contemplating such stipulations with deep disquiet.
The implications of an even more heavily monitored China—already stingy with political and religious freedom—are frightening, but may include less corruption and favoritism. Regardless of any potential benefit, companies that want to keep operating in China must brace for much more comprehensive data collection on their activities—and even stiffer penalties for falling afoul of the panopticon.