The Meaning and Extension of ‘Social Credit System’

The following article first appeared on the official website of the State Council – China’s supreme organ of administrative power – among the  official articles and commentaries published shorty after the adoption of the Planning Outline on the Construction of a Social Credit System (2014 – 2020). Its author, Han Jiaping, is the Director of the Ministry of Commerce Research Centre on Credit and Electronic Commerce. The original version of the essay can be found here. The essay is useful for a general understanding of what social credit in China is.

The Meaning and Extension of ‘Social Credit System’

Han Jiaping

The “Outline”1 adopts a broad definition of the meaning and the extension. 2 of social credit system in our country. This is very consistent with the reality of the construction of credit in China at the moment. It not only embodies the understanding of the concept of credit since ancient times, it also reflects the basic characteristics of the problems of social credit in China at this stage, it is a scientific assertion.

In recent years, various different regions and departments have done, in practice, a lot of exploration concerning the meaning and the extension of the construction of a social credit system, its functional mechanism, its general framework and operational mechanism of social credit system, and the model and path chosen by our country to construct the social credit system. There have been many debates in the academia.Although the “Planning Outline on the Construction of a Social Credit System” has clarified several questions, in order to better implement the Planning Outline, it is still necessary to study relevant issues systematically, and to clarify some vague understanding.

The different definitions of the concept of “credit” in China and the West determine the different understanding of the Social Credit system between China and the West. The definition of credit in Western countries is from a purely economic point of view. The explanation of ‘credit’ given by the Cihai  3 is broader, and it interprets it “abiding by a promise, practice becomes a covenant, and thus other people’s trust is obtained”. In general, ‘credit’ has three meanings in Chinese. First, it means trust towards other persons or objects. Second, it means keeping promises, making practice become a covenant, and thus obtaining other people’s trust. Third, it is a special form of is the trust of others or goods, and the other is to keep the promise, the practice becomes the Covenant, thus obtains the trust of others; The third is the special form whereby value moves against a repayment, i.e. a system of value exchange that does not require an immediate payment or collateral security for property, and which arises from the credit and prepayment for currency lending and commodity (services) transactions.

According to the Chinese definition of credit, credit can be divided into the two aspects of economic credit, and of social credit. Credit as understood in Economics refers to transactions and to transfer of value based on trust, and which forms a creditor-debtor relationship between the subjects who trade. Economic credit takes the form of commercial credit, bank credit, and consumer credit. Economic credit relations among all subjects constitute the market’s trading order. Credit as understood in Sociology refers to the moral norms and codes of conduct that people must obey in the processes of human existence and social intercourse. It is a kind of trust relationship based on ethics, which can be understood as the often mentioned integrity (chengxin).

Trust is based on credit, and credit is based on information. The credit status of market players can be measured according to definite methods by means of their credit information and credit records. The social credit status (is known) mainly through public credit information on major market players. The subjects of disclosure are the public administration, industry organizations, and the public.The economic credit status can be reflected by trade credit information, the subject of which are suppliers, customers, banks and so on, as well as industry organizations and credit institutions.

The different national conditions of China and the West also determine how the main contradiction solved by the credit system in the field of social credit is different. As the market economy in Western developed countries has a long history of market economy, and their legal system is relatively sound, the problem of a lack of social integrity has been basically resolved, or it no longer is the main contradiction of their social credit. Therefore, the credit system of Western countries mainly revolves around economic transactions, belonging to the credit risk management system in the fields of economic and finance.

China’s national conditions are different. On the one hand, after more than 30 years of reform and opening-up and rapid economic growth, China’s socialist market economy system has been initially established. The market has already developed from a condition of shortage in supply to a condition of excess capacity. The buyer’s market has generally taken shape, the proportion of credit transactions in financial and commercial activities is getting higher, and some industries are already close to the development level of Western countries. Risk in credit transactions is a prominent problem. On the other hand, the lack of integrity is still one of the major contradictions in China’s social credit system, and it must be one of the major problems to be solved in the construction of credit. Therefore, unlike Western developed countries, our country is building a broad social credit system, which includes the four big areas of credit in economic transaction, social integrity, administrative affairs, and judicial credibility. Because of such a different understanding of the problem, the direction and progress of the construction of a social credit system in our country has to some degree been affected.

This so-called broad social credit system is an effective social and economic management mechanism, which is based on morality, property rights and law. With the credit system as its core, it will solve the contradiction of asymmetric credit information in the economy and in social life through through the collection, analysis, dissemination of credit record on market players, and their early warning. It will thus punishing dishonest behavior, praise the honest and trustworthy, safeguard the normal order of economic activities and social life, and promote the healthy development of economy and society.In a narrow sense, social credit system refers to the credit risk guarantee system that exists in the field of economic exchanges, mainly to solve problems in the the security and efficiency of credit transactions, and that does not include the social behavioral and integrity standards for members of society.

The “Outline” adopts a broad definition of the meaning and the extension of social credit system in our country. It must be said that this is very consistent with the reality of the construction of credit in China at the moment. It not only embodies the understanding of the concept of credit since ancient times, it also reflects the basic problems of social credit in China at this stage.

  1. The author refers to the Planning Outline for the Construction of a Social Credit System (2014-2020). This is the document that set the tone and developmental direction of social credit in China
  2. In this context, ‘extension’ is not to be understood as the geographical reach of China’s social credit, but as the universe of concepts and object the words ‘social credit system’ refer to.
  3. The Cihai is a dictionary and encyclopedia. For more information on this monumental work, see the Wikipedia entry “Cihai“.

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