Earlier this year, RedNote, a popular Chinese lifestyle and e-commerce platform, experienced a surge in inflow of U.S.-based users. The app became a space for cross-cultural exchange, where people from both countries discussed topics of mutual interest. One of the most frequently asked questions from American users was whether China operates a system that tracks citizens' behavior and assigns a "social credit score," influencing their access to services or purchases.

The answer is: yes.

At its core, China's social credit system is designed to uphold integrity in economic and social activities, which is implemented through collecting, compiling and publicly sharing compliance data on individuals, businesses and government entities.

In recent years, China has continuously introduced regulations and policies for improving the social credit system, which plays a crucial role in optimizing the business environment, promoting financial services for the real economy and improving governance and service efficiency of the government.

A national credit information sharing platform has been established, and mechanisms for incentivizing trustworthiness and penalizing dishonest actions have been refined. Data from the Supreme People's Court, China's highest adjudicatory organ, showed that in 2024, the number of individuals on its blacklist of defaulters declined for the first time in a decade. Those on the list face restrictions on traveling, employment and financial services, as a means of pressuring them to repay their debts.

Gong Jiong, a professor of economics at the University of International Business and Economics in Beijing, told Beijing Review that the social credit system plays a vital role in China's market-oriented economy, which serves as an economic safeguard that mitigates financial risks brought about by wrongdoing.

"By improving credit transparency, it boosts market efficiency, reduces default risks and, more importantly, makes financing more efficient for micro, small and medium-sized enterprises with sound credit records," Gong said.

Improving regulation 

In March, China issued a guideline on improving the social credit system, aiming to provide support for building a unified national market while maintaining a fair and just market environment, as well as promoting high-quality development.

China's efforts to build a unified national market focus on removing local trade barriers and protectionist policies and smoothing the flows of capital and labor forces across China's regions.

The guideline states that a social credit system covering all types of entities, featuring unified rules and regulations, and being contributed to and shared by all, should be created and integrated into all aspects of social and economic development.

It outlines measures to strengthen the credit system within government departments, market entities, social organizations, individuals and the judicial and law enforcement systems. They are aimed at addressing issues such as debt defaults, refining credit-based regulatory and governance mechanisms and enhancing the marketization of the credit system.

It also calls for efforts to strengthen the application of blockchain and other state-of-the-art technologies in credit information management, and improve information sharing on the premise of protecting the legitimate rights and interests of entities and individuals and information security.

Privacy protection and prevention of social credit abuse feature prominently in the new guideline. The guideline bans unauthorized or excessive use of personal data, including sensitive information and non-credit data, in any credit evaluation process and calls for stricter safeguards for disclosing the credit information of state-owned enterprises under the premise of ensuring data security.

The document further underscores the importance of enhanced credit supervision in platform-based industries, including online streaming services and multi-channel network institutions (entities registered on online content platforms that provide services such as planning, marketing and brokerage for creators), emphasizing information sharing between public credit bodies and platform operators for sound market behavior in rapidly growing online sectors.

According to a commentary in newspaper Economic Daily, the policy measures would enhance the role of credit as an economic ID to address financing difficulties facing small and micro private enterprises and invigorate the market.

Government overreach? 

According to Gong, unlike credit scoring schemes in other countries like the United States and the United Kingdom, China's government-run social credit system is not profit-oriented and covers more than just financial trustworthiness.

Under the system, mechanisms have also been developed to reward trustworthy behaviors like paying loans on time, while deducting from credit scores and even administering penalties for misconduct such as violating traffic rules, smoking on high-speed trains and defaulting on court fines.

As complements to the official system, financial institutions in China have also provided credit rating services for individuals and enterprises using technologies such as big data and cloud computing. Sesame Credit, a credit rating system operated by e-commerce giant Alibaba's fintech affiliate Ant Financial, is a major player in China's private credit sector. Fintech refers to the integration of technology into offerings by financial services companies to improve their services and delivery to consumers.

According to the company, users' credit history, behavioral habits, ability to pay off debts, personal information and social networks are measured by Sesame Credit to produce a credit rating of between 350 and 950. The data are mostly collected from their online shopping records and online financial behavior such as credit card repayments and money transfers.

When users' credit scores meet predefined thresholds, they can enjoy convenient services on various platforms such as getting quicker approval for loan applications and enjoying fast check-in at hotels without paying a deposit.

The service was introduced to make life easier for groups such as students and blue-collar workers, who often have difficulties accessing services like deposit-free housing rental under traditional credit scoring systems, the company said.

For individuals who fail to repay their debts by the required deadline, restrictions on high-speed rail travel, flights and stays at high-end hotels may apply. These measures encourage creditworthiness while ensuring that the basic living needs of defaulters remain unaffected.

Room for improvement 

According to the Economic Daily commentary, the authorities should provide fast-track access to public services for enterprises with high credit scores, and financial institutions should improve financing accessibility for credible entities. Readily available mechanisms should be implemented for administrative approvals, certification processes and credit restoration.

Data security remains a major concern in the system's implementation. Gong stressed that the authorities and related institutions need to better balance data collection and personal privacy protection.

According to the National Development and Reform Commission (NDRC), China's top economic planner, the authorities will prohibit the use of non-credit-related or private information in credit evaluations, improve the authorization system to gain consent before accessing non-public credit data, and build an accountability system for violations.

New technologies, including privacy-preserving computing technologies, have been applied in information sharing to minimize leakage risks. The government will also explore applying the blockchain technology, which provides secure, immutable records, to store key data for encrypted processing and traceable operations, the NDRC said. BR

(Print Edition Title: A Network for Trust)    

Copyedited by G.P. Wilson 

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