Government Credit Check

State credit assessment

Multi-national company in China - Are you worried about the personal credit system and data protection regulations in China? So should you! Synopsis of Seyfarth: The People's Republic of China is making headway in the implementation of its obligatory "social credit system". "Multinationals in China should pay attention to this system and be prepared when it is introduced, if not already. The Chinese State Council published in June 2014 a call for the creation of a "social credit system" - basically a domestic credit result for every individual and every company, but one that reflects more than just creditworthiness: the call states that the aim of the system is "to promote the building of socially sincere relations in an omprehensive manner in order to establish "harmonious and friendly human relations" and "to promote the advancement of societies and civilisation".

" "Announcement of the Council of State on the drawing up of a draft plan for the construction of a system of credit for society (2014-2020)", GF No. (2014)21 (14 June 2014). Whereas the system is initially piloted on a non-statutory basis and operated by nominal privates such as Alibaba, the government has indicated that by 2020 it "will have adopted basic legislation, rules and standards for soft loans" and "will fully implement confidence-building and punishment mechanisms".

" Press outlets have indicated that the government will formally oversee the system at this stage, which will be obligatory. Municipal authorities are also currently working to develop their own credit schemes. Finally, information gathered in the schemes of municipal administrations, government authorities and individual institutions is transferred to a central data base.

A recent Wired paper suggests that the rating will eventually be predicated on a variety of determinants, among them the following: Loan histories - Does a person or a company repay its debt? Civil Compliance - Does a person or company comply with applicable law, both locally and nationally? Solidarity with political parties and the state - Does a person or company endorse the Communist party and the government of China?

Do individuals or businesses buy or work with brand names in China? Who does a person or businessperson work with? Big Data meets Big Brother while China rates its citizens," wired Rachel Botsman (October 21, 2017). One government officer of the NDC Commission for Development and Reform, which is responsible for the implementation of the system, noted that a'national information exchange platform' had been established'to link 37 government agencies' and that it had gathered more than 640 million credit information.

9 million poorly rated individuals are not allowed to take planes", Global Times (2 November 2016). In the view of the Government of China, the aim of this programme is "for the whole of civil society to follow the shared value[s] and codes of behaviour and proactively establish a "trustworthy honour[ious], disgracefulness, shame and good community atmosphere".

Others have a different perspective, as they believe that the system is more about societal scrutiny than credit in the traditional meaning. The Asan Institute for Policy Studies, "Orwell's Nightmare : China's Industrial Credit System" (28. février 2017). Currently, pilots credit schemes like Alibaba's sesame credit "do not penalize directly because they are "unreliable.

However, the system offers an incentive to adapt to the value the government tries to convey: Good " scores make it easy to find a new job, hire a rental vehicle, check in at the airports or get a passport; the result is that it is more difficult to do such things with " poor " scores.

However, at present the system of subsidised credit cannot impose such sanctions alone, but the judicial system can include enterprises or persons who do not fulfil their commitments in the High People' s Court's publication "List of Unfair Enforceable Persons". The persons on the above lists are restricted in various ways, among them limits on travelling, work, finance and credit, markets accessibility and state assistance.

According to China's intelligence source, by the end of 2016 nearly 5 million individuals had been excluded from flights and over a million had been excluded from trains on the basis of information already available in the system. Because the system looks at more than just the story of the debts payments, the points can drop if you work with the right kind of person, or maybe just end up in the bad place.

A settlement did not include "frequent visits to parents" as a downside when calculating creditworthiness. To even express the false thoughts could lower your point number, as a China teacher working with the government on the development of the system explains: The same system of reward and punishment is applied to companies. An enterprise can be awarded a higher credit rating if it reduces power use, promotes domestic or domestic government initiatives, or works with domestic companies.

On the other hand, a business that does not have a strong security programme, that does not want to back a domestic government's pets programme, or that does not want to share large amounts of information with the government can be demoted. Mercator Institute for China Studies states that the system for enterprises is "designed to continuously supervise and assess the commercial and non-economic behaviour of enterprises" and "to provide an incentive for enterprises to adhere not only to legislation and regulation but also to the industry and technology objectives set by the Government of China".

" "The MERICS China Monitor: China's Social Credit System" (24 May 2017). While the system will allegedly provide equal treatment for domestic and international firms, there is concerns that international firms will be discriminated against. Orwellian, the downside is that the new credit system could also facilitate lending and make doing in China cheaper.

In contrast to the USA, with its credit office system, China has never had a complete credit report system. In addition, the system goes beyond pure credit raising and extension and, according to the government, seeks to foster a holistic approach of "trustworthiness". "For example, one of the objectives is to penalise and segregate not only those persons and companies who do not settle their invoices, but also those who are selling fake or negligent goods, violating contract terms or otherwise failing to fulfil their consumers or commercial duties.

One of the express aims of the credit system is to make China's companies reliable and attract attracting overseas investment: as the State Council recognised in its "Planning Outline", research into the system of subsidized credit is a necessary prerequisite for deepening cross-border co-operation and exchanges, building global brand names and reputation, lowering overseas related transactions and enhancing the country's smooth performance and impact.

" "Beijing establishes a huge system" (October 26, 2016). Thus the issue arises whether the credit rating system will also cover overseas companies active in China. As it does, will there be mandatory disclosure or reports that a company must make to the system?

Respect for the law can pose singular regulatory problems for overseas businesses, and the costs of respecting the law can be unaffordable for some businesses. Should overseas corporations or their subsidiaries in China provide information about staff in China? And if so, will this cover non-citizens working in China or just Chinaans? How about foreigners who work in China on a temporary basis (e.g. a senior manager from abroad who travel to China on a regular basis for longer periods of business)?

Wherever overseas employer is required to divulge information about persons working in China, does such behavior contravene other legislation, such as U.S. federal or state data protection legislation? Will the provision of information or the gathering of information from the China Credit System lead to overseas corporations being liable in other jurisdiction?

Could, for example, businesses that participate in the credit system be taken to court in the United States for breaches of the Fair Credit Reporting Act? Could overseas employer working in China be obliged to earn points for candidates or present workers? Although this is not necessary, is it to the benefit of a business not to hire low scorers, not only because of what the marks actually say about the reliability and care of the recruit, but also because a low scorer could lower the business's own marks?

Insofar as the system of crediting individuals with the right to information through societal channels is scratching societal information about individuals and businesses, will this also cover the world of societal information? And if so, do multinationals have to be concerned that their policy or other press position in other jurisdictions may affect their Chinese credit standing? Lastly, businesses should look at the system of corporate credit as a useful resource for commercial information.

Whether the system is sufficiently robust to deliver useful information about prospective staff or associates will remain to be seen (regardless of the impact of prospective association on one's own assessment). Is this system really going to help keep the grain away from the straw - the hard-working staff from the lay people, the sound deals from the fraudsters?

However, if US and other multinationals can actually profit from the openness promised by the system of credit, it could eliminate part of the spine from the additional regulation it otherwise seems to imply.

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