Have you ever missed a credit card payment? If so the consequences might have included late payments or difficulty in obtaining personal loans. But if you are living in China after 2020, the outcome may be much more serious than you could have ever imagined.
In a move that is bound to drastically change the way Chinese people live and interact with each other, Beijing has proposed to introduce a universal credit scoring system for every individual, company and government entity just three years from now.
In practice, every individual will be assigned a virtual credit score that will determine their creditability relative to the others. What is controversial is that the score not only reflects your financial creditability, but your social creditability as well.
This is because the score will be based on more than just financial inputs like credit history and contract obligation fulfilments. According to Beijing’s guidelines, the score will be generated based on personal characteristics, behaviour and preferences, as well as interpersonal relationship, among others.
Essentially, each individual will be rated based on literally every aspect of everyday life – from living and consumption habits to personal interests. They will be judged by the content of their social blog posts, their interaction with friends and families, and perhaps most importantly – their political ideology and their stance towards the communist government.
TECH GIANT SUPPORT
While it may sound like the stuff of fiction, the system is made possible by the super-connectivity of China’s social media and payment applications like WeChat and Alipay, which are now widely-used for payments, bank transfers and purchasing goods both online and in the real world.
Tencent and Ant Financial, the internet giants behind WeChat and Alipay, are turning all the data into quantifiable scores that reflect not just an individual’s credit, but also his value to the society as the Communist Party sees it.
"Someone who plays video games for 10 hours a day, for example, would be considered an idle person, and someone who frequently buys diapers would be considered as probably a parent, who is more likely to have a sense of responsibility," Li Yingjun, technology director of Ant Financial’s credit database Zhima Credit, said in explaining the rationale behind the scoring system.
THE CONSEQUENCES
It is not hard to imagine such a social credit database having a widespread social impact. Beijing has made it clear low-scoring individuals will suffer more than just the financial difficulties people with bad credit typically experience.
In addition to difficulties in obtaining loans, people with bad social credit could potentially have a hard time with rental and visa applications. They could also face tougher social security terms and get lower benefits. They could even run into difficulties in getting a decent job.
When things get to their extreme, they could face penalties including slower internet speed, be denied service at restaurants, or even restricted from traveling.
China’s masterplan could theoretically create a utopian nation whereby everyone lives according to a certain standard. It could prevent the financial fraud, tax evasions, food safety scandals and counterfeit products for which China is so notorious.
But Beijing’s goal for its social credit system is clear – it will strengthen the Communist Party’s rule by reinforcing state censorship, while serving as a massive surveillance tool against people that act against the government.
WHY BUSINESSMEN SHOULD CARE
It is clear the social credit system will have widespread implications on how businesses is conducted in China.
China is regarded as a highly policy-driven market because the government is known to control private businesses through imposing industry regulations. It does not hold back even when facing off against some of the country’s biggest private companies, and has a track record of interfering the private sector.
Should the social credit system come into effect, it will grant Beijing an even stronger grip over the state-planned economy by giving it the power to phase out businesses as it wishes.
Under the plan, Beijing could kill any business simply by restricting access of low-rated individuals.
It could literally ban people from getting into any restaurant, shop or cinema, as well as restrict purchases of any kind. In the online world, it could block them from accessing specific sites or making certain purchases and bookings.
On the corporate level, the government could restrict the scope of any company by blocking their raw material supply or borrowings from financial institutions. Commercial banks and suppliers would no longer be able to freely choose their customers as they do now.
Private enterprises are likely to react by operating according to government instructions. As such, Beijing could interfere in the private sector through controlling production plans and setting prices, making the state even closer to a command economy.
In short, it would be the death knell for business freedom in China.
Some industry experts believe that China could never really implement the plan because it is technological impossible to collect and manage the data of 1.4 billion Chinese people.
Still, the rapid development of China’s tech giants is never negligible. In particular, Ant Financial’s Zhima Credit is able to access Alipay’s 520 million active users – that’s already one-third of the country’s population.
From that point of view, it is perhaps just a matter of time before these companies turn the data into personal and corporate credit profiles.
How the plan plays out is something we must all keep a close eye on.
