Focus topics

Social Credit System not only affects companies

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  • On November 14, the NDRC published the long-awaited draft of the “Social Credit System Establishment Law”. The draft was compiled by NDRC and the People’s Bank of China and the commenting period ends on 14 December 2022.​
  • As last week’s Sinolytics Radar shows, companies are covered by a broad range of 27 performance areas reaching from contract performance and tax up to their cooperations with social organizations. Which of the performance areas apply does of course depend on the exact scope and specifics of a business entity’s operations on the Chinese market, including its industry, product/service and its location.​
  • Beyond companies, individuals and administrative organs are covered most strongly, but also the regulatory compliance of Social Organizations and Foundations is being assessed by the Social Credit System as confirmed by the draft law.​
  • For individuals, the scope of impact is mostly dependent on their professional role; a lawyer or civil servant will be covered more intensely than a “normal” employee of a company. However, also for employees of companies the judgment of the Social Credit System can be decisive for their professional development, if, for example, they are employed in selected areas such as statistics or accounting.​
  • Public credit is a category with relevance for all individuals living in China. Under the lead of the Public Security Bureau, the law states that “Social security management, road traffic safety management, immigration/entry-exit management, as well as online security management should be strengthened”. Only for heavy road safety offenses, the draft law gets more specific, calling for public shaming of “heavily distrusted behavior”. All other mentioned areas are not further specified which is one of the (still many) weaknesses of this draft law.​
  • The detailed compliance requirements that legal persons are judged on are specified in hundreds of regulations, standards and policies. Most of these specific requirements have already been enforced and the performance evaluation is well advanced. Others are still in the first stages of implementation. The Social Credit System Enforcement Law drafting will send a strong signal towards all these implementation efforts and push for further implementation progress.​
  • For all companies with registered entities in China, a close monitoring of these implementation efforts and their specific impact on a company’s regulatory compliance is inevitable.​

Sinolytics is a European research-based consultancy entirely focused on China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.


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