What is “Social Credit”? How Big Data is Expanding Credit Access in China

By Katya Pollock (PO ’21)

In 2014, the Chinese State Council announced that it would begin pursuing the establishment of an ambitious national credit scoring program. The “Social Credit System” aims to amalgamate previously fragmented data held by governmental agencies and private firms to establish a standardized credit score for individuals, businesses, nongovernmental organizations, and government departments. Pilot projects operated by licensed Chinese firms and municipal governments have applied data relating to social media usage, online purchasing decisions, traffic violations, and even dating history to estimating an individual’s “trustworthiness”. If administered well, the SCS could usher in a new phase of more equal economic growth by expanding credit access to millions of Chinese citizens.

China’s economy as it stands today faces two prominent challenges: a falling growth rate of output and high income inequality. Since China’s economic growth reached its peak a decade ago, the country’s GDP growth rate has gradually decreased by more than half. The slowdown reflects, in part, reduced global demand for Chinese goods and falling returns to capital investment. At the same time, China’s rapid economic growth since the 1980s has led to an inevitable sharp increase in economic inequality: from 1980 to 2008, the share of income held by China’s richest 10% has increased from 26% to 41.7%.

Expanding credit access could go far in addressing both of these anxieties. As a supplement to household income, credit stimulates private consumption and could push the Chinese economy towards more stable, domestic consumer-based growth. Credit also has the potential to reduce income inequality by providing low-income populations with access to resources necessary to finance housing, education, and medical expenses.

As of 2014, less than one-third of China’s adult population had a credit history, compared to 89% of American adults. To encourage lending to the more than 950 million Chinese citizens without traditional credit histories, the government of China has directed private firms and municipalities to assess citizens’ “social credit”. Where lenders would traditionally estimate creditworthiness based on records of loan repayment, social credit programs use data on individuals’ social behavior, retrieved from online activity as well as judicial data, to estimate their likelihood of repayment. Eight private firms and thirty-six municipalities are currently testing variants of the Social Credit System in a mix of voluntary and mandatory programs.

Sesame Credit, the Alibaba-affiliated social credit scoring service, estimates a user’s likelihood of repayment using purchasing decisions and interactions with other “trustworthy” users. Users with high Sesame Credit scores are offered benefits such as deposit-free car rental and expedited application for visas, while users with low credit are charged higher interest payments and have reduced access to Alibaba services. In the city of Rongchen, each citizen is assigned a starting score of 1,000, from which points can be deducted for “untrustworthy” behavior, such as traffic violations, or added for “trustworthy” behavior, such as volunteering or donating to charity. Residents with high credit receive discounts on utility bills and easier access to loans, while those with low credit face more difficulty applying to government jobs or renting housing.

The heavy hand of the Chinese government in determining social credit criteria has raised concerns that the Social Credit System could be used to levy economic punishment on politically disruptive members of society. The State Council’s Planning Document for Construction of a Social Credit System proposes that social credit scores should be reduced for “spreading rumors online”, a phrase used commonly to criminalize online political activism. Already, all Chinese websites with commentary features are required by the government to maintain blacklists of users writing “illegal” statements, which could be incorporated into the SCS. Even without the SCS, however, the government maintains numerous avenues by which to suppress dissent, from firewalls and monitoring systems to open arrests of journalists, bloggers, and activists. Although the risk of the SCS degenerating into a tool of political repression is real, it would be only one additional device in an already expansive web of methods used by the government to retain its authority.

China’s Social Credit System may be to date the most ambitious government-led plan to harness the power of big data. If governed well, the program could engender sustainable, consumption-based economic growth and lift millions of households into China’s growing middle class. Still, these advancements will come at a cost to digital privacy and perhaps further restrictions on freedom of speech. With the Chinese government targeting the program’s completion by 2020, the Social Credit System, and the personal data on which it is founded, could soon become a powerful force in guiding China’s economic and political future.

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