China’s Social Credit System in the light of Covid-19

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published on 17 April 2020 | reading time approx. 4 minute

  

Recently, headlines of various media create the image that certain regulations and systems, which are issued and implemented to combat the coronavirus in China, appear to be linked to the Social Credit System.

  

     

Many foreign-invested as well as Chinese entities are currently increasingly concerned with the question to what extent "good" or "bad" behavior during the coronavirus pandemic may affect their Social Credit Score in China.

 

The following is a brief overview of the connection between the Social Credit System for companies and individuals with the Coronavirus:

 

Content

1. Exemption from credit penalties for entities and individuals that suffer disadvantages from the Coronavirus »

 

2. Rewards for companies and individuals that make great contributions to the containment of the Coronavirus »

 

3. Penalties for companies and individuals related to the Coronavirus epidemic »

 

4. Simplified procedure for granting of loans »

 

Roundup »

 

 

1. Exemption from credit penalties for entities and individuals that suffer disadvantages from the coronavirus

Generally, those companies and individuals who violate contractual or tax obligations in China are included into credit-losing lists according to the Social Credit System. However, considering that normal business is currently disrupted by the coronavirus, and a number of individuals have lost their source of income, the credit punishment has partly been with-held in certain cases.

 

For instance in individual insolvency cases, companies within a reorganization process, which were just about to reduce the capital gap and eliminate their debts, but got again into financial trouble caused by the coronavirus, could still manage to repair their Social Credit Score with support of the court, the insolvency administrator and the bank.

 

By means of this credit repair, such companies qualified again to obtain financing from banks, which might lead to a faster resumption of work during the epidemic.

 

On 8 February 2020, the “Beijing Municipal Bureau of Economy and Information Technology” published policy measures as a response to the outbreak and the impact of the novel coronavirus pneumonia epidemic to promote the sustained and healthy development of small and medium-sized enterprises (SME) as well as micro enterprises. Based on Clause 3 of the measures, negative Social Credit Records of SME and micro-sized enterprises caused by the epidemic shall temporarily not be included in the municipal public credit information system. These policy measures shall be valid until the end of 2020.

 

Please note that this only applies if the disadvantages are triggered and caused by the Coronavirus.

Moreover, the State Taxation Administration has made clear in its “Circular on Measures to Give Full Play to the Role of Taxation in Helping to Win the Battle of Epidemic Prevention and Control” of 10 February 2020 that taxpayers who delay in reporting or submitting relevant information due to the epidemic situation shall be exempted from administrative punishment, and corresponding records shall not be included in the tax credit evaluation upon submitting a written explanation.

 

2. Rewards for companies and individuals that make great contributions to the containment of the Coronavirus

Those companies making decisive contributions to the fight against the coronavirus, for example medical staff or volunteers, as well as companies that manufacture or donate urgently needed medical devices (e.g. respiratory masks, electronic thermometers), have been granted rewards on their Social Credit Records.

 

In general, such rewards can look like this:

  • Inclusion of the company in a “green channel”, which can lead to easier access and processing of future administration issues
  • Inclusion in the “red list” for favorable guidelines
  • Adjustments of Social Credit Records

 
One of the measures published in this context to combat epidemics at national level is a notice from the Ministry of Transport. On 24 January 2020, the Ministry of Transport published a decree on opening fast-pass roads for qualified vehicles that carry personnel and emergency supplies, as well as on the exemption of such vehicles road user fee (toll).
 

3. Penalties for companies and individuals related to the coronavirus epidemic

The announcement of the Ministry of Transport includes a clause that, for example, the falsification of fast passports or the pretending of the transport of emergency material can be included in the assessment of the social credit of vehicles, personnel or legal entities.

 

On the other hand, individuals and/or companies committing crimes and/or violating specific regulations during the epidemic shall be severely punished. This applies especially to those acts that are unique during the epidemic period, such as concealment of travelling history, jack up prices for scarce materials, making and selling fake or substandard medical equipment, non-compliance with quarantine obligations, etc. These actions are regarded as negative behavior and might lead to a credit deterioration.

 

4. Simplified procedure for granting of loans

Certain credit data platforms enable financial institutions to conduct loan approval online, which shall accelerate and simplify the overall loan granting procedure. Entities with good Social Credit Record may obtain lower interest fees or even interest-free loans.

 

The ChaoYang District People’s Government of Beijing Municipality set up a special trust plan of an emergency loan renewal fund for SME and micro enterprises in Chaoyang District. On 10 February 2020, it issued 18 measures to alleviate the impact of the epidemic on SME in the areas of science and technology, culture, tourism, catering, exhibitions, transportation, education, film and other industries. Those measures include RMB 300 million for the Chaoyang District alone, which should benefit the local economy.

 

Such measures have been adopted in various cities and provinces and show the efforts of the Chinese government to stabilize the social and economic order during and after the epidemic.

 

Roundup

To sum up, at the moment there are no national regulations in China that punish or reward the overall behavior of individuals or companies during and in connection with the Corona pandemic. Rather, companies and individuals are encouraged to keep an eye on local regulations.

 

There has been debate over such lack of national standards governing which type of behavior does and does not qualify for inclusion into the Social Credit System. On the one hand, the large number of local regulations could speed up a uniform elaboration at national level, on the other hand, the sometimes arbitrary and different handling of certain behaviors is criticized. 

 

To what extent the coronavirus accelerates or delays the implementation and enforcement of the Social Credit System in China is difficult to assess at present. However, the trend shows that attempts are being made to integrate the Social Credit System into new laws and regulations.

 

In any case, a national comprehensive platform for the evaluation of private individuals and companies has not yet been successfully implemented (with or without aspects relating to the coronavirus).

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