Social Credit System China: A detailed study, Part 1 — Technology services news

Mayank Batavia
8 min readNov 12, 2018
Photo by wu yi on Unsplash

Google Social Credit System China and chances are most sites you check out will call it dystopian and Orwellian.

They will tell you how intrusive the Chinese Social Credit System is and how it runs with little regard to data privacy.

Is that really the truth? How bad is the Chinese Social Credit System? Is it unfair and too intrusive to the people of China? How does it compare with data collection policies and tools of some of the most developed democracies?

We made a detailed study of the literature available to answer these and many such questions. The result is our two-part post on Social Credit System China.

In Part 1, we begin by identifying some of the weaknesses of the current credit system in China. From there, we look at look at some of the basic facts of the new Social Credit System of China and identify the 4 principles behind it.

Next we take look at the credit score system in the UK, France, Germany, Switzerland and the USA. The post then analyses the objectives behind China’s Social Credit System. Finally, we conclude with an infographic on the 14 focus areas of the system.

Part 2 will discuss how the system is being implemented. Besides, it will discuss the major criticism leveled against the system as also the benefits of the system.

Weaknesses of China’s existing credit system

By China’s own confession (see Rogier Creemers’s translation of the official Chinese document), their current credit score system is, at best, broken, inconsistent and far from comprehensive.

A credit score system, by definition, is both present and necessary in a country where people have the funds to purchase products through financing options and there are enough products to attract buyers. The way China was heavily loaded in its communist ideology, it was nearly impossible for the average citizen to get prosperous enough to afford consumer goods, housing, overseas education or expensive holidays.

Since then, a lot of things have changed and building a strong and reliable, nation-wide credit score system has become a major requirement.

Here are some of the major weaknesses in the older Chinese credit score system (and the ones that the new Social Credit System is trying to overcome):

  • Not modern: The system is unable to keep pace with the rapid economic changes sweeping China.
  • Flawed records: The data in the current system is inaccurate and flawed, which makes it unreliable.
  • Incomplete response mechanism: Punishments for trust-breaking or rewards for timely repayments are not proportional to the acts of trust-breaking or trust-building.
  • Weak protection: Information that exists on credit records isn’t properly protected and there is scope for both data compromise and data manipulation.
  • Laid back atmosphere: Society in general takes a laid-back view of commitments that are not honored and there appears to be inadequate sincerity.
  • Risk prone: With compromised service and quality levels, processes are highly vulnerable to industrial accidents, frauds and sale of counterfeit products.

Basic facts about the new Chinese Social Credit System

The roots of the new Social Credit System of China date back to 2014.

On June 14, 2014, an outline of what was to become the current Social Credit System of China was published by China’s State Council. The document was titled “State Council Notice concerning Issuance of the Planning Outline for the Construction of a Social Credit System (2014–2020)”.

Over time, the document evolved into what has today become the 3-year plan to build Social Credit System.

The government wants at least the basic model in place by 2020.

Companies that operate within China need a Chinese business license. This includes trade unions, social organizations, business enterprises, NGOs and so on. All these have been included under the social credit system. These entities will carry an 18-digit unified social credit code that the Chinese authorities will use to track such bodies. All information, including transgressions, will be reported to National Enterprise Credit Information Publicity System.

The credit system aims to build a mammoth, centralized database of searchable files of every single Chinese citizen and organization. Each of these files will be a consolidation of data collated from public as well as private sources.

Given the size, geographic diversity and the difference in development in rural and urban areas, China’s plan is certainly ambitious, to say the least. Naturally, numbers and records alone are insufficient to pull this off.

One of the key forces China will use is Artificial Intelligence (AI). Surveillance, powered by 200 million CCTV cameras, will report events of various sizes that will be consumed by AI that will try and make sense of the images captured.

Following are the four principles of China’s Social Credit System:

  1. Government leading the way: Have the government show the path, including the role of the government.
  2. Fine-tuning the legal system: Establish appropriate laws and regulations and set up systems for credit standards.
  3. Planning and implementation: Implementation will be phase-wise, given the complexity and size of the social credit system.
  4. Identifying points for pilot launches: Choose focus areas from where to flag off models to aptly demonstrate the efficacy of the system.

A quick overview of credit score systems in some developed countries

As China gears to perfect its own Social Credit System, it might be interesting to have a quick look at the credit score systems in some of the developed countries around the world.

Here is basic understanding of how credit scoring systems operate in the UK, Germany, France, Switzerland and the USA.

Credit score in United Kingdom

Three credit reference agencies dominate credit scoring process in the UK: Callcredit, Equifax and Experian. When you apply for any form of credit, data from these agencies is combined to get the larger picture of how sound a debtor you are.

To begin with, there’s data from previous lenders (if any), including how often you have applied for credit.

If you’ve applied too often, especially in a short time, it could indicate you’re in serious need of funds, making you a high-risk prospect. Joint accounts are also covered.

Next, the data will include your court appearances, mostly to do with previous debt behavior and bankruptcies. Naturally, there will be mentions of whether you’ve committed frauds in past.

Finally, among other information, there will be information in your address, how long you’ve lived there and your voting eligibility status.

In exchange of a certain fee, you can also find what information these agencies hold against your name.

Credit score in Germany

The credit rating system in Germany is believed to have started at the beginning of the 20 thcentury, when the Berlin Electric Company sold electrical appliances on installments only those people who paid their bills regularly.

Today, almost all credit scores come from the privately held SCHUFA Holdings AG, popularly known as SCHUFA scores, or just SCHUFA.

SCHUFA scores still remain the central. As would be expected, paying your bills on time and not stretching your credit limits lead to a healthy SCHUFA score. To ensure the system isn’t gamed, the exact method of how number in the score is arrived at is not disclosed.

SCHUFA scores contain your past purchases, honoring of payment schedules (e.g. if you leased a car) and previous credit card history.

That said, there is some fair criticism on the extent to which SCHUFA scores are accurate, updated or complete. It could be one of many reasons why it’s not easy in Germany to get loans for high-ticket items like houses.

Credit score in France

Unlike the UK and Germany, France does not have a prominent credit scoring agency. That means when you apply for a loan, your bank will look at your history and relationship with them before accepting or trashing your request.

That also means that, to some extent, if one bank rejects your loan application, it might not affect your chances with another bank!

The Banque de France holds a list of defaulters and this information is available to financial institutions.

Credit score in Switzerland

You could say the system is a bit of a cross between that of France and Germany. While there’s Betreibung that tracks your credit behavior, it isn’t always used. That way, banks can sometimes be on their own. Occasionally, it will behave like SCHUFA — it won’t assign any reason why it’s turning your application down!

The Betreibung tracks your bill payment behavior and your delaying on payments due can swiftly harm your reputation.

You can build your score by using your credit card and remaining timely on your payments.

Credit score in the USA

Unlike the United Kingdom, the US credit score system is expressed in numbers, which indicates the likelihood of the borrower repaying the debt.

Experian, Equifax and TransUnion are the three major credit score reporting bureaus in the US. They use what is called the FICO model.

While each of the three bureaus use the same model, the score reported for the same individual may vary depending upon which bureau prepared the score. That is the because different bureaus may carry different information on the same individual.

The FICO score relies upon payment history, debt burden, length of credit history, type of credit used and recency of credit inquiries (if the individual has made frequent credit inquiries recently, she might be in serious need of funds, which might go against her).

Objectives of China’s Social Credit System

China expects to achieve some game-changing goals with the proposed system it is so diligently putting in place.

Here are some of the major objectives China is pursuing through its Social Credit System:

  • Standardize and streamline businenss’ and citizen’s economic and social reputation and reliability
  • Make stronger the societal governance and introduce innovations to it
  • Build solutions to social and economic development problems
  • Control and navigate discourse that promotes the communist party and the nation’s ‘version of truth’
  • Meaningfully club data from government sources with that from private channels
  • Build and improve the state’s ability to pre-empt, predict, prevent and solve problems, particularly of social, political and economic nature
  • Improve the party’s understanding of finer aspects and situations with real-time data collection to build an informed decision-making mechanism
  • Build a culture of sincerity and reliability and thereby raise the credit-worthiness of the entire state

Infographic on the 14 focus areas of China’s Social Credit System

Sources and references:

  1. Rogier Creemer’s translation
  2. Samantha Hoffman’s report

Originally published at on November 12, 2018.



Mayank Batavia

Interested in AI, data privacy and our next-door dragon. Teach/Taught math. Love smart puzzles that I can’t solve, which means most. Run blog