China's data effort targets firms

System of social credit seen as potential regulatory tool

Visitors are seen Friday in Shanghai near the Bund Bull, an emulation of the Charging Bull statue on Wall Street in New York. China is heightening its monitoring of businesses, using data to grade companies and their owners.
Visitors are seen Friday in Shanghai near the Bund Bull, an emulation of the Charging Bull statue on Wall Street in New York. China is heightening its monitoring of businesses, using data to grade companies and their owners.

BEIJING -- China is funneling vast amounts of public and private data into huge databases aimed at tightening its control over its nearly 1.4 billion people.

But the business world has become its biggest target.

China is increasingly amassing information divided among various government agencies and industry associations -- including court decisions, payroll data, environmental records, copyright violations, and even how many employees are members of the Communist Party -- and using it to grade businesses and the people who run them, according to state media, government documents and experts.

Companies that get low grades can be banned from borrowing money or doing other essential tasks. Their owners or executives could have their bank accounts frozen or be forbidden from traveling.

The effort isn't just aimed at Chinese businesses. In letters sent to companies, officials have threatened to give United Airlines, American Airlines and Delta Air Lines black marks on their records if they don't bend to Beijing's wishes.

China calls it the social credit system. Chinese leaders hoped to start by next year a nationwide program focused on punishing or rewarding individuals. It would be aimed at replicating the credit scoring system common in the United States and other places, as well as taming behavior in a country where laws are inconsistently enforced.

Civil libertarians warned that it would create a digital Big Brother that would intrude into everyday Chinese life. But the system has yet to materialize for individuals on a mass scale.

For many businesses, however, social credit has become a fact of life. In September, China's central economic planning agency announced that it had completed a first evaluation of 33 million businesses, giving them ratings from 1 for excellent to 4 for poor. China hopes the rating system will someday become a nationwide regulatory tool, harnessing the country's growing skills in big data and automation to help the Communist Party keep the business world in line.

"It's supposed to affect the decision-making of businesses to conform to what the party wants," said Samantha Hoffman, a fellow at the Australian Strategic Policy Institute, a think tank.

Loren Fei, the 30-year-old daughter of a silk factory owner, has been added to a blacklist of businesses and their owners. Because her father couldn't pay his bills, she said, her bank accounts have been frozen and she lost her job and her ability to travel.

"My family really wants to pay back the money, and the system is making it impossible," she said.

Authorities also are testing the system as a tool to bend foreign companies to the Communist Party's political views.

United, Delta and American received letters last year from Chinese aviation officials saying their social credit scores could be hit unless their websites labeled Macau, Hong Kong and Taiwan as part of China. Lower scores would lead to investigations, the possibility of frozen bank accounts, limitations on local employees' movement and other punishments, according to a letter sent to United and seen by The New York Times.

Representatives of the three airlines confirmed changing their websites but declined to comment specifically on the matter.

Social credit is one aspect of the Communist Party's efforts under President Xi Jinping to strengthen its hold over the country. Authorities also are installing facial-recognition technology and other monitoring systems to quell dissent as well as stop crime. They have taken a tougher line on media and worked to give the party a greater role in offices and classrooms.

Applied to businesses, the social credit system could create benefits for China. Despite the Chinese government's authoritarian grip on power, it has long struggled to get businesses to follow the law. Competing, inefficient government ministries hinder enforcement, and local governments shelter powerful businesses. The result has been widespread pollution, rampant violations of labor laws and other problems.

For instance, Fei said that for years her family's silk factory had been given dispensation to break environmental rules by local government authorities eager for economic growth. It was eventually shut down for environmental reasons.

But companies have little recourse if the data are inaccurate or if punishments are disproportionately disruptive, experts said.

Foreign companies have expressed concern about how they could be affected by their business partners. The German chemical company BASF, for example, is responsible for ensuring that its Chinese partners stay environmentally compliant.

"They put pressure on us in the supply chain to sort out the environmental challenges," said Jorg Wuttke, president of the European Union Chamber of Commerce in China, who is also the chief representative of BASF in China. "That's a definite shift that puts a lot of pressure on us."

Foreign businesses also worry that social credit could become a weapon in the trade war between China and the United States. In a report last month, the EU Chamber of Commerce cited the example of FedEx, the U.S. package carrier, which has been caught in the middle of the trade fight. The Chinese government has threatened to place FedEx on a list of foreign companies and people it considers unreliable, alleging the company broke the law by withholding the shipment of Huawei products. The language used was similar to that used under the social credit system.

Chinese officials have not released the list or said what it would do, but they have said they will treat all companies equally.

Business on 09/24/2019

Upcoming Events