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Chinese Businesses Need to Know about China’s Corporate Social Credit System

Updated:2019-12-3 17:36:10    Source:www.tannet-group.comViews:420

According to the Chinese government, the system will use big data to build a high-tech society where individuals and organizations follow the law. It will do so by assignment social credit to each entity based on their behavior, which are translated into a variety of reward and punishment.

What is China’s social credit syetem?

The subjects for social credit system are citizens, business and other organizations, and government officials. The main reason of the social credit system is to supervise each credibility.

For individuals, this most relates to creditworthiness in a similar way to how credit scores work in Western counties. It is a challenge for financial entities as bank to assess who obtain the ability to pay back a loan with limited personal credit information. Thus, the system is to offer a measure to everyone lacking credit history. 
For business, they may earn high scores when they follow government policies to pay tax according procedures in order to create a fair, transparent and predictable business environment.
For government official, the system want to ensure the officials are politically loyal, well performing, and corruption-free.

How China’s corporate social credit system work?

Businesses are mostly assessed on standard regulatory and compliance criteria that they are already legally required to fulfill. This includes paying taxes on time, holding requisite licenses, meeting product quality standards, and fulfilling environmental protection requirements. Additionally, . Even if a company meets all of its legal requirements, it can still be penalized if, for example, one of its suppliers is on a blacklist. Companies with poor scores face a number of penalties. For example, they may be inspected or audited more frequently by regulators, be excluded from public procurement opportunities, unable to benefit from incentives, and be publicly named and shamed.

Individual and corporate credit systems overlaps in some parts. For example, if an individual with a poor rating registers a business, the business will automatically have a poor rating, and vice versa.

Nevertheless, it is clear that compliance in China will be more important than ever before. Businesses should take immediate steps to avoid inaugurating the social credit system by finding themselves in a deep hole to climb out of.

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