Difficulty in judging people and business partners and lack of available reliable data has always been a dilemma in China. China has been characterized as a low trust society, where trust is something that has to be built by good deeds, compared to the western world where there is normally initial trust until you destroy it by bad deeds.
The Chinese government launched already in 2014 an effort to by 2020 have ready a national social credit system with a single score for each individual and business with the purpose as “let the trustworthy to roam everywhere under heaven, while making it hard for discredited to take a single step”.
After many local pilot programs, systems for both individuals and companies now start to be available online. Most of this data was available before, but some of it not public.
The Chinese government agencies have long ranked companies according to how well they conform. This is the case with the tax bureau, customs, etc. Good behavior is rewarded with less control and faster processing. Bad behavior results with more restrictions, control, audits, etc.
“We find it much easier to do background checks on suppliers, and useful to be able to fairly quickly access the ownership of a company, debt obligations and legal processes. While reporting of financial numbers is still optional”, says Per Linden CEO of Scandic Sourcing.
There are worries about misuse of this system and wrongly assigned punishment would take up to 5 years to clear, stifling a company’s ability to operate and a person’s ability to move around, get loans etc. Having suppliers and business partners on a blacklist will also affect the score. The idea is that this should be a fair and transparent and self-policing system. But there is a risk is that complaints from suppliers, customers and disgruntled employees can have big effects.
Active efforts to ensure compliance will be even more important in China, than before. Keep track of your own score as well as your business partners and suppliers.