User Name:     Password:        Join Us
  • 1
  • 2
  • 3
  • 4
  • 5
▪ China’s Market Regulator Reined in Internet Commercial Ads
▪ Stricter than the GDPR, China’s Privacy Law Provides Prohibitive and Control Oblig
▪ China kicked off the 1st national security review on DiDi
▪ Non-prosecution for compliance under ISO 37301 - Dentons lawyers take the world’s
▪ China’s Data Security Law is anything but frightening
▪ Alibaba fined USD 2.68 billion for abusing dominant market position in China
▪ China’s new “Blocking Statute” and the concerns it raised
▪ Survey result: how is bribery risk managed in China?
▪ China’s Administrative Punishment Law Awards Meaningful Credits for Compliance Eff
▪ Salon | How Would the Sanction on Pompeo and Blocking Measures Impact Foreign Comp
▪ Fees to speakers: academic exchange or commercial bribery
▪ China’s Personal Information Protection Law (2)
▪ China’s Personal Information Protection Law (1)
▪ Reading Into China’s Export Control Law
▪ English Translation of Export Control Law of China
▪ China Issued Its List of Unreliable Entities
▪ Demystify Corporate Social Credit System in China
▪ China is deploying “Operation Skynet” to further “Fox Hunt”
▪ China is to award whistleblowers heavily – foreign companies are more vulnerable t
▪ 130 Chinese headhunters arrested, involving breach of 200 million personal info
▪ Corporate Compliance Programs Evaluation Issued by US DOJ (Chinese Translation)
▪ The prospect is promising to commercialize Level-3 autonomous driving in China
▪ Intelligent and digital infrastructures are scheduled to accompany automatic vehic
▪ Will China illegalize VIEs?
▪ You cannot miss the gold rush under China's new Foreign Investment Law
▪ Classified Protection Under China's Cyber Security Law
▪ China is to fast-track law-making in autonomous driving
▪ What compliance obligations to meet to transfer data from within China?
▪ Chinese government uses digital forensics technology to dig bribery evidence
▪ A Chinese medical device distributor fined CNY 50,000 for bribing with Moutai
▪ How would Chinese E-commerce Law affect you (1)?
▪ Conflict between the culture and the Party’s rules: $70 gift money got a director
▪ "Excessive Pricing" from perspective of Competition Law
▪ Does China prohibit cross-border transfer of scientific data?
▪ Hypermarket Caesar jailed for ten years for giving “reward for go-between”
▪ How is environmental protection tax collected in China?
▪ China Redefined Bribery Anticompetitive in Nature
▪ China is to amend its Constitution
▪ Chinese government vowed to crack down on bribe givers more harshly
▪ China has its own Dodd-Frank; the award for whistleblower could be US$ 80K
▪ Chinese government may LIUZHI a suspect of wrongdoing
▪ Cooking clinical trial data is rampant and now criminally punishable in China
▪ 5th Viadrina Compliance Congress
▪ Does a compliance bird eat nothing?
▪ How Are Drugs Being Sold in China Despite the Anti-Corruption Crusading
▪ Chinese whistle-blower lauded while French boss fled out of China
▪ Life Sentence for Deputy Chief Justice of China
▪ Why Is Chinese Anti-bribery Law a Very Important Compliance Obligation?
▪ The Report on Corporate Compliance Management in China (2016)
▪ Use of "predictive coding" in eDiscovery document review…best friend or job replac
 
Home > Compliance
Demystify Corporate Social Credit System in China
By Henry Chen | 2020/5/18 0:40:11

I.What is the Corporate Social Credit System


The Corporate Social Credit System guides the behavior of market subjects through modern scientific and technological means. It includes a series of different credit rating standards, so as to build the basis for calculating the credit regulatory rating of all market entities. The corporate's behavior will be continuously monitored, and the scores will be adjusted accordingly. If the corporates do not know the areas covered by the credit system or the measures to be taken to meet the credit standards, the corporates may suffer from the risk of punishment, or even be blacklisted.


II.The reasons for establishing the Corporate Social Credit System


Since the reform and opening up, China's economy has developed rapidly and made remarkable achievements, but the lack of credit and integrity is still one of the main problems in China's economic operation, which is not conducive to creating a good market environment for fair competition.


As we all know, the market supervision mode of the Chinese government is undergoing a transformation from "pre supervision" to "post supervision", and the Corporate Social Credit System is an important part of the transformation of the market supervision mode in China. The purpose of the Corporate Social Credit System is to support corporates with good credit, weaken or eliminate corporates with poor credit. Credit is the foundation of a strong market economy and strengthening credit will increase consumer confidence. In recent years, the Chinese government attaches great importance to the construction of Corporate Social Credit System, and actively promotes relevant legislation and industry standards.


III.How to implement the Corporate Social Credit System


The first step of the evaluation mechanism of the Corporate Social Credit System is the establishment and publication of the evaluation indexes and methods of the government to the credit evaluation system. According to different fields, relevant government departments formulate credit evaluation rules, clarify the basic concept of credit evaluation, and provide guidance on how to improve the credit rating of corporate and how to avoid dishonesty.


After establishing the credit evaluation mechanism, the government supervises the corporate activities and collects the corporate behavior data by using the rating system and related technologies. For example, through the "National Corporate Credit Big Data Public Service Platform", the use of big data to collect and analyze corporate finance, management, technology, social responsibility, and other data to comprehensively evaluate corporate credit.


After the establishment of evaluation criteria and the collection of corporate behavior data, the government database can automatically calculate the corresponding credit evaluation of corporates according to the evaluation criteria and the collected data.  For example, corporates will be divided into A, B, C, and D levels according to the tax credit, and corporates will be divided into integrity, good, warning, bad levels based on environmental credit. However, in the areas where no specific rating or scoring standards have been formulated, "credit records" are usually adopted that the dishonesty of corporates will be recorded in such credit records, while the serious illegal dishonesty will be included in the "serious dishonesty list" and get the penalty of breaking faith by multiple government departments.


After obtaining the credit evaluation of corporates, the government will implement different supervision on different corporates according to the credit evaluation, encourage the trustworthy behavior and punish the dishonest behavior.


IV.The effect of Corporate Social Credit System


Credit has been widely developed in the modern market economy because it has the function of financing funds and promoting the smooth flow of goods. It plays the role of adjusting the surplus and shortage of funds and saving costs, greatly improving the efficiency of commodity circulation and the efficiency of using funds. A perfect corporate credit system can improve the efficiency of economic activities, reduce transaction costs. At the same time, the government can also use it to regulate the operation of macro-economy.


For corporates, a high score can mean a range of different things, such as lower tax rates, better credit conditions, easier market access, rapid approval, more public procurement opportunities, and lower inspection rates or targeted audits.


Similarly, corporates may be blacklisted and punished due to poor scores or specific violations. There are various forms of punishment, such as fines, high inspection rate and targeted audits, exclusion from preferential policies, restrictions on public procurement.


V.Compliance advice


Through the above analysis, the Corporate Social Credit System has a profound impact on the development of corporates. Therefore, in the era of the gradual improvement and implementation of the Corporate Social Credit System, it is particularly important for corporate to understand and comply with the system.


Corporate should accurately position the requirements of the Corporate Social Credit System, that is, what level and field of credit rating laws and regulations will be applicable to the daily business activities of corporate and establish the applicable credit rating catalog of corporate.


The Corporate Social Credit System is still under construction and needs to be adjusted, expanded and improved continuously. Therefore, the corporate should pay continuous attention to and accurately grasp the future development of the social credit system, closely observe the changes of the administrative department’s credit rating system and rating requirements, and carry out internal monitoring on the daily operation of the corporate to ensure that the corporate's behavior meets the credit rating requirements.


Based on the relevant laws and regulations, the corporates shall communicate and exchange directly with the administrative departments in a timely manner on the problems in the credit rating process.



_________

The author, Henry Chen, licensed to practice law in China and New York, is a senior partner of Dentons Shanghai Office.  Before joining Dentons, Henry was AP Compliance Director of Ford.  Henry's practice areas include FCPA, anti-bribery and fraud investigation, cyber security and data integrity, compliance management system, corporate matters and dispute resolutions.  Henry's email is Henry.Chen@dentons.cn.  Henry is the author of the book Risk Management on Commercial Bribery in China and the book Compliance Risks of Enterprises in Globalization: Outbreak and Control



Tweet Like Email LinkedIn
There are no comments for this journal entry. To create a new comment, use the form below.
    Enter your information below to add a new comment.
Author:   
Email:    (optional)
URL:    (optional)
Content:  
    
  Comment Moderation Enabled
Your comment will not appear until it has been cleared by a website editor.
The Compliance Reviews COPYRIGHT © 2013-19 All Rights Reserved. Supported by International Risk and Compliance Association and International Risk and Compliance Institute Limited. 沪ICP备10034943号-8
沪ICP备19033746号-4
沪公网安备31010502002477号