China and the coronavirus – But what comes next for the businesses?

If you are in any ways doing business with or related to China – either it is through an agent, with your own legal entity or being employed in Mainland China – you will find significant measures taken by the government to fight the spread of the coronavirus and to bring business and the economy back to normal.

What comes next?

Once this epidemic battle is won, you may see yourself facing the next challenge: the full implementation of Chinas Social Credit System (SCS). Unveiled already in 2014, the government aims to track the trustworthiness of everyday citizens, corporations, and government officials, stated in a planning document released by China’s chief administrative body in 2015. The Chinese government says the system is designed to boost public confidence and combat problems like business fraud and corruption.
If the nationwide system rollout for individuals takes on the characteristics from its preceding pilot-projects, individuals will be rated by the Social Credit System and their behavior will be scored in points that sum up to an overall credit score. This score may influence all aspects of a person’s individual life, such as booking flights or high-speed train tickets, access to public services, credit or private schools, etc. Honest and trustworthy citizens shall be rewarded and granted easier access in the areas just mentioned.

On the other hand, companies behavior will be regulated by the Corporate Social Credit System. They will be rated in all areas of their business, such as finance, legal, custom, R&D, PR, HR, work safety, and more. Legal requirements for compliance in these areas will be monitored band the involved authorities will upload their ratings onto a platform visible to anyone, at anytime, anywhere in the world. The system is becoming transparent and data will be collectively used by all relevant government bodies.

With measurements, ratings, scores, and respective consequences being nothing new, the system is expected to oblige companies more than ever to be compliant with all legal regulations. As one of the major new aspects, the Corporate Social Credit System introduces (equivalent to the scoring for individuals) a joint sanction and reward system. If a company fails to comply with the regulations in one area of their business, this may lead to a blacklisting in that respective area and at the same time triggers more scrutiny at other authorities, resulting in higher administrative burden and less access to benefits. On the other hand, the system also aims to praise and reward those who stand out through compliance or over-compliance.

What’s more is that the SCS for individuals and companies are interconnected. Your personnel’s individual rating may have a direct influence on your company’s rating and vice versa. If a person fails to comply with laws & regulations that lie in his or her responsibility, this person may get blacklisted and not be able to hold a key-position in another company again. Bad ratings of other companies, for example your supplier may as well influence your own good standing.

2020 is “not a magic date” where we will observe the system being fully implemented, rather, 2020 is the end of the initial planning period. We should expect various new policies and outlines come out this year. We recommend that companies maintain close attention to the SCS’s development.
Meanwhile:

1. Become familiar with the system, its functions and result mechanisms.
2. Check your own credit and ratings.
3. Analyze your internal and external reporting lines and your influential triggers on the CSCS rating.
4. Check your business partners’, clients’ and suppliers’ ratings! Minimize your risks, before getting down to business with them.
5. Liaise with your local authorities and in-charge officers.