China is endeavoring to build a credit society by formulating a series of top-level designs.

Integrity is at the foundation of traditional Chinese culture. However, China’s social transformation has resulted in its gradual transformation from a society of acquaintances into a society of strangers. This has eroded trustworthiness and diminished the credit and moral evaluation systems needed to support social functions.

Credit deficiency has directly damaged the Chinese economy. According to data released by the Ministry of Commerce, Chinese enterprises suffer direct and indirect financial losses worth 600 billion yuan ($96.23 billion) annually. Around one-third of these losses are attributed to factors including the poor quality of products, production and sale of counterfeit products, and contractual fraud. Data released by some research institutions reveals that the bad debt rate of Chinese enterprises is as high as 1 or 2 percent and rising annually, while the comparative rate in developed Western market economies is usually 0.25 to 0.5 percent. In addition, around 4 billion contracts are signed in China annually, but their compliance rate is just 50 percent.

More alarming is that the nation’s credit deficiency has seriously eroded basic ethics. In recent years, the dilemma of whether or not to be a good Samaritan has sparked debate in Chinese society. A skit highlighting this issue was performed on China Central Television’s 2014 Spring Festival Gala. The final dialogue in the skit stimulated people’s thinking: “If a person falls and we don’t offer them a hand, then won’t their heart have also fallen? If a person’s heart has fallen, then even if we offer our hand we can’t help them up.”

But over the last few years there have been many media reports of injured people seeking to prosecute the good Samaritans who come to their aid. Earlier this year, a traffic policeman on patrol assisted a seemingly unconscious elderly man who fell to the ground after no pedestrian dared help him. As the policeman lent the elderly man a hand, however, the latter suddenly regained consciousness and accused the officer of knocking him to the ground.

When people’s behavior isn’t bound by their morality, a system must be used to restrict their actions.

Recently, the National Development and Reform Commission and People’s Bank of China have led planning of a national credit system. A draft, dubbed “Social Credit System Construction Plan Outline (2014-2020),” has been submitted to the State Council, and is expected to be officially released in the near future. According to the draft, China will establish a credit system covering four major fields: politics, business, society and justice. In future, every Chinese citizen will possess their own credit code in the equivalent form of an identification card.

The draft includes a three–step plan. By the end of June 2014, work to establish a uniform platform for sharing credit information will begin, and plans for setting up credit systems for governments, individuals and organizations will be submitted. In 2015, the plan will be introduced and implemented. By the end of 2017, the platforms sharing citizens’ credit information, including records for business registration, tax and social security payments, and traffic violations, will be set up.

After the draft was released, some local governments immediately gave their responses. Some have begun taking measures to smoothly transition to the system. Positive public reception reflects people’s welcoming attitude toward a social credit system.

Experts believe that the establishment of a national credit system will help restore trustworthiness to Chinese society and deter people from being dishonest because of its ramifications.

Relatively late start
Compared with some developed countries, the establishment of a social credit system in China has come relatively late. China began to promote efforts in this field in 2001. It conducted preliminary planning in 2004, and started building an all-round framework in 2010. Currently, the most effective credit records are concentrated in the finance industry.

The People’s Bank of China set up its financial credit database in 2004, collecting relevant information from more than 18 million enterprises and over 800 million individuals. The Regulations on the Administration of Credit Investigation, which took effect in March 2013, help to regulate the behaviors of credit-investigation institutions, information providers and users. They also aim to protect the rights of all parties concerned. In addition, some agencies including the departments of industry and commerce, taxation and customs, as well as industry associations and financial institutions, also record credit information of citizens and enterprises.

“China‘s current credit system is mainly limited to the finance industry, but a broad credit system should include all information related to the credibility of citizens and enterprises,” said Liu Junhai, director of the Institute of Commercial Law at Renmin University of China. He also suggests that it is necessary to incorporate useful information, such as product quality, food security, and tax, salary and social security payments into the credit system to establish a uniform model and reduce credit-related risks for wider society.

Because vast credit data is collected by different government departments, one of the big problems China faces in establishing its national credit system is simplifying information enquiries made by people and businesses. For example, a person or business planning to cooperate with an enterprise will likely look into its operating performance, tax situation and owner’s educational background in advance. Gathering this data requires dealing with the departments of industry and commerce, taxation and education, which further complicates credit investigations.

According to the draft, a uniform platform for sharing useful credit information will be conducive to resolving the aforementioned problems.

Zhang Zheng, director of the China Credit Research Center under the School of Economics at Peking University, claimed that social consensus, requirements of market-oriented practices and already completed related work have pushed the establishment of a national social credit system towards a new stage.

Western credit system model not suited to China
Can China transplant the theories and standards of Western credit systems into its own national social credit system? The answer is no, according to Wang Shuqin, chief expert of a major project funded by the National Social Science Foundation entitled “Research on the Establishment of Social Credit System in China.” Wang, who is also a professor at the College of Political Science and Law at Capital Normal University, said China cannot replace its social credit system with the Western model nor universally apply its attributes domestically.

Tian Kan, executive director of the Credit Research Center under the National Academy of Economic Strategy at the Chinese Academy of Social Sciences, noted that the US credit system has undergone more than 160 years’ development and adopted at least a dozen related laws. The term “integrity” has had rich implications over the span of 5,000 years of Chinese culture. The five issues of benevolence, righteousness, courtesy, wisdom and integrity have served as core factors of the traditional Chinese values system and the national basis for core values of socialism with Chinese characteristics. Due to the above reasons, transplanting the Western credit system model into China does not seem viable. China should dialectically absorb the advantages of the Western credit system, as well as developing its own system suitable for Chinese situations.

Currently, studies of a credit system with Chinese characteristics conducted by Chinese academia are still relatively poor. Tian suggested greater attention be paid to credit theories and principles with Chinese characteristics, while laws related to establishing such a credit system be assessed. Focusing on credit legislation and enforcement, as well as the formulation of various technical standards for China’s credit sector are also necessary, said Tian.

Wang also claimed that legislation related to the collection and use of credit information should be encompassed into the social credit system, rather than just focusing on the establishment of an information-sharing platform.

The establishment of a social credit system at the micro-level involves individual and national privacy, said Wang Bei, a law professor at Shaanxi Normal University. It is therefore necessary to “clarify the boundaries of information disclosure and inquiry,” Wang said.

Another important issue is standardizing behavior of the government, which must deliver on its promises to society and accept public supervision to set a good example of social integrity. If all these measures can be implemented, sound social credit practices will become common in Chinese society.

Translated by Chen Meina
Revised by Tom Fearon