China’s Social Credit System: an Epoch of Value Creation

Published: 2021-09-15 06:50:08
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Category: Economy, Asia

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Social Credit System (SCS) refers to the system which allocates every individual and organisation a credit score with a vision of steering the behaviour of citizen and compliance of organization with government regulations to create a credit society. This paper introduces practices of SCS with help of existing literature and reviews of expertise from international foundations. Critical questions answered in the paper are: a) How valuable social credit is? b) The importance of SCS to individuals, business operations and the nation.
China is in the crucial stage of economic and social transformation. After China joined the World Trade Organization, China aims to improve the socialist market economy system conducive to deepening international cooperation and exchanges through economic globalization. The problem of missing creditability will interfere with China’s opening to the outside world, hence its international impression. A necessary condition is the country’s reputation, namely trustworthy. The problem of lack of trust in the Chinese market origins from food safety issues, cheating, counterfeit goods, tax evasion, corruption, abuses ranging from intellectual property infringement to the sale of adulterated foodstuffs etc. Various kinds of dishonesty in social and economic life have seriously interfered with the normal operation of the market economy as well as the development and progress of social civilization.What is Social Credit System? Why Social Credit System?
For above reasons, SCS is presented as an important means to perfect the “socialist market economy” along with strengthening and innovating governance of society. The SCS is an example of China’s “top-level design” approach coordinated by the Central Leading Group for Comprehensively Deepening Reforms. According to the overall “Planning Outline for the Construction of a SCS (2014– 2020)” issued by the State Council of China, the SCS will focus on four areas: “honesty in government affairs”, “commercial integrity”, “societal integrity”, and “judicial credibility”. Its inherent requirements are establishing the idea of a sincerity culture, and promoting honesty and traditional virtues among citizen and organizations
The Social Credit Score for Individual
More than 70 years ago, two men called Bill Fair and Earl Isaac invented credit scores. Today, companies use Fair, Isaac, and Company (FICO) scores to determine many financial decisions, including the interest rate on our mortgage or whether we should be given a loan. Similarly, SCS is basically a big data gamified version surveillance method, keeping a dossier on every individual’s business transaction and social media interaction. Tracked political and personal transgressions, movements and actions followed them for life, from schools to jobs will be resulted in a quantified score. This score would be based on data points including demographic information such as age, gender, occupation, personal income, family status etc. Besides, the performance of debt repayment especially on credit cards will affect the credit score. Also, other aspects include online purchases, users’ performance in various credit services, posted content on social media, and the circle of friends one has
The Value of Social Credit for Individual
It can be said that under the drive of “credit”, the credit economy seems to have ushered in an outbreak period. SCS is widely distributed in other sharing economy businesses, covering all basic necessities of public life including deposit-free for accommodation, transport, food and beverage, borrowing outfits, jewelleries, books, overseas WiFi even dating purpose and other various kinds of sharing benefits. In turn, the social credit score would have a wide-ranging impact on people’s lives, influencing their ability to get jobs, loans and mortgages, their relationships with friends and family, and even their ability to travel. Individuals with low credit score will be prohibited to enjoy these public services and sharing benefits even they have sufficient purchasing power. 22 May 2018, Mail Online: “more than 11 million people have been blocked from taking the train or plane in China because they were regarded as untrustworthy by the society. The ban has been imposed as a punishment after the individuals apparently performed poorly according to a social credit system China is building.” This explains how social credit is viewed far more valuable than cash. Credit will certainly become a new currency. Credit ratings and scores will become more and more referential. The future of credit may be more valuable than your bank deposit
The Social Credit Score for Business Organization
The Chinese government’s plans go beyond on rating individual citizens but also include plans for credit scores for all businesses operating in China. The SCS amass a huge collection of general information on companies, withal information on their compliance with government regulations and, wherever practical, real-time data on their business behaviours.
Consequences and Benefits of Social Credit System for Business Organization
A company will get a lower credit rating if it does not comply with emissions targets, work safety standards, or government investment requirements. Moreover, it regards also to punctuality of payment, product quality, customer satisfaction and delivery products ordered via e-commerce platforms on time. Possible punishments are:
a) Result of bad ratings include unfavourable conditions for a new loan.
b) Higher taxes than compliant competitors.
c) No permission to issue any bonds or invest in companies listed on the stock market.
d) It decreases chances to participate in publicly-funded projects even mandatory government approval for investments.
In severe cases, the company’s e-commerce accounts could be shut down and its high-level management’s individual credit ratings could be affected. On the other hand, a fully compliant company can benefit from a largely open Chinese market with manifold investment opportunities, low tax burdens, better loan schemes, gentle support from government incentive mechanisms etc. The image such portrayals conjure up is one of an omnipotent behemoth relentlessly carrying out a long-prepared scheme for complete control.
The Value of Social Credit for Business Organization
Hence, a company’s performance is no longer limited to financial indicators which are turnover rates, revenues, profits, cash flow, innovation spending etc. The social credit records and scores not only could help businesses to better judge a potential partner or acquisition target, also letting the public to decide whether to support the company or not. In short, a company’s credit score is new value representation of its brand in terms of how corruption-free, productive, socially responsible, financially transparent, and conscience in business it is. The higher the social credit score the organisation acquires, the better cooperate identity it represents. The chain reactions are widening its business opportunities reach, gaining more financial, social and other potential supports from the society and government
The Importance of Social Credit Score to The Natio
If the Chinese government succeeds implementing the SCS and its related mechanisms, companies’ market activities will be regulated in a self-enforcing manner, namely “self-restriction of companies”. It is enabled by advanced big data technologies which the system is designed to constantly monitor and evaluate companies’ economic as well as non-economic behaviour. This creates a strong incentive for companies to make their business decisions and operations comply not just with laws and regulations but also with the government’s industrial and technological policy targets. Consequently, corruption, money laundering through shell companies will be eradicated and promotes expansion ofsmall-medium companies. Companies’ economic trustworthiness is strengthened, hence contribute to building up a new culture of socially and environmentally responsible behaviour, which enforcing cooperate social responsibility (CSR). This is an approach to revitalize the credit assets of more and more people and build a credit community, a credit city and even a credit society. Resultantly, a nation’s figure is reflected by the value of its credit society, which paves its path to economic globalization. The social credit score is not in currency nor any financial index, but a value that manipulates a country’s development indicators which are GNP (Gross National Product) and GDP (Gross Domestic Product), especially HDI (Human Development Index) and PQLI (Physical Quality of Life Index). These indicators imply great significance on its national growth, gaining potential foreign investment and international supports
Challenges of Social Credit Syste
The SCS will also yield substantial challenges. Possible examples are:
a) A considerable number of companies might not be able to carry the costs of compliance with the government’s regulations especially in the case of adhering to environmental standards during production. Some non-compliance companies might be forced to close their business or restrict investments.
b) Particularly during the implementation process, China’s SCS will very likely be prone to error, due to immature technologies.Compliant companies might get bad ratings and vice-versa, which will inevitably cause economic damage.
c) SCS may pose a constant risk to the protection of proprietary company data. A major data leak or theft could easily result in severe economic damage through the sharing or selling of sensitive company data to competitors or other states.
d) Compared to other countries, the Chinese government has much more leeway in collecting and using data. A fundamental problem of the system could be the misuse of proprietary data by Chinese government entities, which could be highly detrimental to companies’ business.
e) Lastly, while public access to information creates transparency, the algorithms of the various credit rating services in calculating credit scores remain opaque
Conclusion
This paper has explained SCS both to regulate the economy and forged as a tool of governance to steer the behaviour of citizens by allocating social credit scores to individuals and organizations. Encouragement for trustworthiness and constraints against untrustworthiness as incentive mechanisms based not just on the lawfulness, but also the morality of their actions, covering economic, social and political conduct. SCS automatically confronts individuals and organizations with the consequences of their actions. This indicates social credit creates a credit economy more valuable than momentary value. The past currency is credit, and the credit economy era will be “credit creation currency”. As more and more application scenarios cover every corner of daily life, credit has become a necessity for modern people and organization, hence the epoch of social credit has become truly valuable. However, SCS faces harsh challenges on nationwide implementation: data security, ambiguity compliances, transparency of credit score calculation etc.

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