An Economic Approach to China’s Social Credit System

In an effort to increase trustworthiness across society, the Chinese government has been building its Social Credit System since 2014. This system targets all natural and legal persons in China and consists of four major elements: a central data platform, a rating system for commercial creditworthiness, a propaganda system for educative purposes and a publicly available listing system with black- and redlists (for negative or positive behavior) as well as consequential joint punishments and rewards.

While most of the related academic discourse has focused on the system’s political implications, Theresa Krause and Doris Fischer provide in their paper to the book “Social Credit Rating” an economic perspective on the Chinese government’s rationale for setting up such a system. Transaction cost economics has shown that trust is an important factor for business transactions and economic growth.

“However, China’s rapid economic development and modernization has weakened societal trust, including the traditional trust-building approach via guanxi (interpersonal relationships). Hence,” Theresa Krause and Doris Fischer write in conclusion, “the Chinese government is using the Social Credit System as an alternative approach for trust-building. The system is supposed to strengthen institutional mechanisms and incentivize trustworthy behavior. It can be regarded as an add-on to the currently rather weak legal system and fragmented government enforcement apparatus.”

Theresa Krause is a doctoral candidate at the Chair of China Business and Economics at the Julius Maximilians University of Würzburg and researches the subject of “Compliance and the social credit system in China”. In 2010/11 she worked in NGOs in Shanghai as part of the BMZ’s weltwärts program and then studied in Karlsruhe, Taiwan and London with a focus on economics, politics and China. Before her doctorate, Theresa Krause was a consultant at an international consulting company.

Doris Fischer holds the chair for China Business and Economics at the Julius Maximilians University of Würzburg. She is chairwoman of the board of the German Society for Asian Studies and was chairwoman of the German expert group for the German-Chinese platform innovation on behalf of the BMBF from 2017-2019. She is currently cooperating with colleagues from the Technical University of Munich on a project funded by bidt on the effects of the Chinese social credit system on companies.

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