Changes in Social Credit and the 19th CCP Congress (1)

While the 19th Congress of the CCP is less than a month away, a debate tracing the possible future trajectories of social credit has already started, and it is focussing on local legislation.

This far, local legislation on social credit has been adopted by Shanghai Municipality, by Hubei, Hebei, Zhejiang, Shaanxi Province, and Shenzhen. While each one of these pieces of legislation is important in its own respect, the Shanghai social credit regulations play a unique role in driving change in social credit. The first Chinese city to introduce a credit rating system, since 2000 Shanghai has been shaping national trends in social credit.

Comments on the Shanghai social credit regulations – which went into effect yesterday – have been produced by Professor Lin Yu (Shanghai Academy of Social Sciences), and published on the latest issue of The Monthly Magazine of Shanghai People’s Congress (Shanghai Renda Yuekan). To enable readers to form an independent opinion on ongoing trends, the full translation of the article is available below. The original article can be found here.

The article provides a window into a little-known domestic debate on social credit. It lets all those with a stake in social credit understand how social credit is on the brink of change.

Change is always dense with possibilities. At the moment, there are signs that “social credit” may be morphing into a more sophisticated policy, designed to govern economic actors through big data management. While it is not possible to predict what shape and direction this process will take, one thing is certain.

Only those with the knowledge and skills needed to read and comprehend the ‘signals’ coming from within China will be able to understand possible future impacts on their activities, and on their rating. Ignoring upcoming changes or dismissing them as meaningless will entail significant risks.

Billboard exhorting compliance with social credit, Shanghai. © Flora Sapio 2017.

Use Social Credit Cautiously and in Accordance with the Law

Lin Yu

(Shanghai Academy of Social Sciences)

The Shanghai Social Credit Regulations have formally become a part of the matrix of local laws and regulations of our municipality, after a complete examination by the Standing Committee of the Municipal People’s Congress, a meticulous polishing by the legislative work team, in-depth study by experts and scholars, a constant clarification of misunderstandings, and the search for cohesion and consensus. The Regulations were passed by the Standing Committee of the 14th People’s Congress of Shanghai on June 23, and they will go into effect on October 1, 2017. While the smooth passing of the Regulations is encouraging, good laws need to be well governed, and the implementation of the Regulations will be something to look forward to.

Follow the basic concept of “Social Credit”, and beware of generalizing credit

During the drafting of the Regulations, concerns were voiced that social credit legislation was creating “moral dossiers for citizens”. But, this stemmed from a misreading of the concept of “social credit”. In the field of sociology the concept of “crime” has the meaning of “antisocial behavior”. In the field of literature, it can be described through rhetorical figures as vile methods and serious consequences. But, once the legal field is entered, it must adhere to the three features of social harmfulness, illegality, and punishability. Similarly, the concept of “social credit”, created by the Regulations, should not only be understood as “honesty and trustworthiness”, but it should also be strictly defined as “a condition where natural persons, legal persons and unincorporated legal persons (hereinafter collectively referred to as the subject of information) with full civil capacity comply with their legal obligations or with their contractual duties in their social and economic activities.” Whether a violation of moral behavior falls into the frame of “social credit”, depends on whether relevant laws and regulations negatively evaluate such conduct, or whether the conduct it regulated by a contract between the parties. Credit legislation is not so much a so-called moral dossier, but a “a (partial) record of illegal behavior and breaches of contract.”

When a party decides on “whether to obey the law and abide by a contract” he performs a serious legal act, which requires relevant organs to reach a legal conclusion which is credible and enforceable, through the relevant legal procedure. If a determination is made through a judicial process, then it should be based on judicial documents. If it is made through an administrative procedure, then it should be evidenced by administrative documents embodying a concrete administrative action. It should not be replaced by “on-the-spot determination” and “suspicions of misconduct.” Only in this way the generalization and alienation of “credit” can be avoided.

Follow the scientific approach of “Catalog Management” and specify the limits of collection.

Misdemeanors and breaches of contract are numerous and complicated. Can the Social Credit Regulations list them one by one, and decide which ones should be included on the credit platform? The answer given by the Regulations has been “implementing catalog management”. “Breaches of faith” as referred to in the Regulations should be understood as misdemeanors or breaches of contract “within the catalog”. The compilation of the “catalog” shall follow the principles of legality, prudence and necessity. The Regulations contain stipulations about the requirements for compiling the catalog and for the compilation procedure.

The Regulations require that where laws or regulations have already made provisions on the inclusion of certain violations in the catalog, other violations stipulated by the same laws or regulations shall not be included in the catalog, as this would not conform to the legislative intent. Concerning information not mentioned by laws or regulations, but which administrative organs consider should be recorded and included on the platform according to the actual management, the three following points should be noticed:

First, without forgetting the basic definition of “Social Credit”, the information that is recorded and entered must be “Social Credit information”. That is, information related to whether the subject of information respects the law and complies with contracts, and that shows violations of the law by the subject of information, must show which article of which law has been violated. Where information shows a breach of contract, it must reveal which article of which contract has been violated.

Second, what is included in the catalog must be “a certain type of” conduct violating the law or breaching a contract, rather than “a certain occurrence of” violating the law or breaching a contract, in order to eliminate arbitrariness and selectivity.

Third, the legitimate procedures stipulated by the Regulations must be complied with.

Follow the legal requirements of “information protection” and balance public and private interests

The so-called “person who breaches trust”, in the context of the Regulations, cannot simply be said to be a “dishonest person”, but a “person who violates the law and breaches contracts”. If further combined with current practice, the scope can be further reduced to a “person who has kept behaviors that have been included in the municipality’s public credit information catalog.” In the context of the General Principles of Civil Law, it is especially necessary to weigh the relationship between protecting personal information, and the social public interest. If administrative punishment has already occurred for an illegal conduct enacted by a natural person, according to the principle of publicity established by article 4 of the Administrative Punishment Law, the administrative punishment shall be disclosed but, personal information should be adequately protected. If the illegal conduct enacted by the natural person is not a conduct to be punished administratively, then administrative liability does not arise, and therefore the Administrative Punishment Law shall not be used. If information should be disclosed, then a different legal basis should be sought. If a breach of contract by a natural person has been determined by an effective judgment, it shall no doubt be disclosed, according to the principle of the publicity of trials. If a breach of contract by a natural person has been determined by an effective arbitration award, according to the principle of secrecy of arbitration, it shall be disclosed, but cautiously.

In clarifying the four concepts of “inclusion, publicity, inquiry and use”, it is still necessary to note that information collection does not equate with information disclosure, and that querying information means that information is disclosed only to those who perform the query. I can certainly make inquiries about my own information. But, when citizens make inquiries about another person, they must obtain an authorization from the subject of that credit information. f administrative organs make inquires about other persons’ information, they shall “determine items relevant to social credit information inquiries according to the needs of administrative management” and justify the relevance of the items before the unit providing the inquiries.

Follow the “authority + relevance” punishment baseline, and develop credit constraints.

Traditional law’s useless residue of “punishment by association” has been already relegated to the rubbish heap of history, and in a sense, exploring the path of “the connection of things” is a fundamental proposition of this piece of legislation, and even of the construction of the social credit system. The current system of administrative punishment is aimed at depriving violators of existing benefits (existing qualifications, property, freedom, etc. But, the credit punishment system is based on limiting the enjoyment of an expected benefit (the future receipt of an administrative payment, administrative benefit, etc.), therefore, objectively it has the effect to control, and it has become a force eccentric to the intrinsic requirements of the process of administrative management. In this respect, the Regulations maintain the necessary force and prudence. They do not create superfluous rules as to which conducts shall be punished, and they do change the cards on the table by creating regulations on how those conducts shall be punished. They assign this task to a future piece of regulation but, nor to prescribe how to punish them, but they define the “scope of authority” and the “relevance” as the bottom line of credit punishment by administrative agencies.

If what is not regulated by the law cannot be done, then when administrative organs adopt credit punishment measures through a concrete administrative act, they shall strictly comply with provisions in laws and administrative regulations. When the measure is adopted through an abstract administrative act, the following typical arrangements must be made:

First, an abstract administrative act should be within the limits of the organs’s scope of responsibility and discretion.

Second, because of the definition of “social credit” in the Regulations, “without negative credit record” includes “no criminal record ” + “no record of misdemeanor” + “no record of breach of contract”. So, if the credit punishment is realized in a beneficial administrative act involving collection and collation (such as enacting rules on selections for the award of a certain honorary title), then the first requirement must be that of “relevance”, to avoid that in the formulations used by these normative documents the words “without negative credit record” be generally used. It is necessary to positively specify “for how long there have been no violations of the law and no breaches of contract of those kinds and that gravity”, and such violations should be compatible with and relevant to the benefit granted.

Third, if the credit punishment is realized through a burdensome abstract administrative act (such as enacting rules on administrative punishment etc.), then it is also necessary to establish well the linkage with the standards of the current system of administrative discretion. The credit status of the person should be included among the factors to be weighted, and become part of the standards of administrative discretion (as stipulated in article 30 of the Regulations, administrative organs can – within the scope of their statutory authority – downgrade the credit level of the subject who has breached trust, list him as a focus of supervision, and adopt other punishment measures).

From normative documents to rules to regulations, Shanghai’s social credit legislation has always been at the forefront of the entire country. The Regulations have the merit to raise concepts to the status of systems, and to create rules out of concepts. The value of their implementation will be creating a governance model out of a system, and letting rules be embodied by modes of behavior.

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