China’s Potential New Trade Weapon: Corporate Social Credits
China’s Potential
New Trade Weapon: Corporate Social Credits
Program will reward or punish companies for their
behavior, but foreigners worry Beijing will use it to impose political
orthodoxy on international firms
BEIJING—After five
years, China is putting the finishing touches on a sweeping new system to
punish and reward companies for their corporate behavior. But foreigners worry
that, amid the continuing U.S.-China trade dispute, Beijing will use
its new corporate “social credit” system as a weapon against international businesses.
While Beijing’s
better-known plans for a social-credit system for individuals have stirred privacy concerns, a parallel effort to monitor
corporate behavior would similarly consolidate data on credit ratings and other
characteristics, collected by various central and local government agencies,
into one central database, according to China’s State Council. The system is
set to fully start next year.
The imminent
nationwide implementation of Beijing’s corporate social-credit system is
unnerving foreign businesses, which have been bracing for further
countermeasures from Beijing as the trade war continues to take unexpected
twists and turns.
Beijing said in late
May that it is drawing up a blacklist of entities it deems unreliable in apparent retaliation
against Washington’s campaign targeting Chinese telecommunications giant Huawei
Technologies Co.
“It makes the instruments of the social-credit system usable as
a tool in the trade conflict,” said Björn Conrad, chief executive and
co-founder of Sinolytics, a China-focused consulting firm that is publishing a
report Wednesday on Beijing’s new social-credit system, together with the
European Union Chamber of Commerce in China.
Mr. Conrad said some
of the language used in recently released draft rules for a blacklist of
heavily distrusted entities—which is a part of the corporate social-credit
system—echoed the Beijing authorities’ warnings about their planned unreliable
foreign-entities blacklist, suggesting that the two efforts are intertwined.
A company’s social
credit could affect the individual credit score of the company’s key personnel
and vice versa, according to the EU Chamber report—a point of particular
concern for executives. A company’s social credit could also be influenced by
the conduct of its suppliers, the report said, and getting removed from a
blacklist could take years.
A separate report
released Tuesday on the corporate social-credit system by Beijing-based
consulting firm Trivium China, whose clients include foreign companies, doesn’t
link it to the U.S.-China trade war but said the system “will provide the
government with vast amounts of systematized data,” and warned about the
possibility of Beijing “co-opting technology to enforce political orthodoxy.”
Beijing’s
social-credit system is set to add to the complexities of doing business in
China, a tantalizing but frustrating market.
The amount of data
collected by authorities administering the corporate social-credit system would
give them “a massive X-ray of the Chinese economic landscape,” said Jörg
Wuttke, president of the EU Chamber in China. The chamber’s report said that a
foreign company blacklisted by tax authorities in, say, Hubei province could
find that information used by other government agencies in other provinces to
punish the company.
While some analysts
are hopeful that the system could also allow for more objective standards to be
applied to foreign and domestic companies, the new regulations will likely mean
higher compliance costs and more uncertainty for foreign businesses.
Some of China’s
biggest and best-known corporate giants are deeply involved in the rollout of
the new corporate social-credit system: Huawei, e-commerce and cloud services
operator Alibaba Group Holding Ltd. and
mobile services giant Tencent Holdings Ltd. are
all named as members of a consortium developing one of the system’s key
databases, according to a Chinese government procurement notice.
These companies, as
well as the government agencies leading the implementation of the corporate
social-credit system—the State Council, State Administration for Market
Regulation, the National Development and Reform Commission and the Ministry of
Commerce—didn’t immediately respond to requests for comments. China’s
social-credit system has been under development since 2014, well before the
U.S.-China trade war. The State Council published a blueprint for the program,
which it said would “build sincerity” in economic, social and political
activity.
Besides credit
ratings, the system incorporates various blacklists of companies caught doing
something illegal or undesirable, such as spreading information deemed
inappropriate online or violating safety standards, according to the separate
reports by Trivium and the EU Chamber. The system also includes lists of
companies with great credit scores. Some of the credit information would be
publicly accessible online.
— Yang Jie and
Kersten Zhang contributed to this article.
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