On the transparency of the credit reporting system in China

Abstract

In recent years, credit reporting agencies are under pressure to reform themselves to reach higher levels of transparency. In this context, the critically considered digitally-implemented credit reporting system in China—the Chinese Social Credit System (SCS)—is of particular interest. Compared to traditional credit reporting systems, the SCS has a wider range of goals, including enhancing social control, establishing a state-defined notion of trustworthiness and increasing market efficiency. It covers not only Chinese citizens, companies, and organizations but also foreign ones which have activities in or with China. This paper studies the transparency of the SCS from the perspective of foreign organizations. We conducted interviews with employees from German organizations that are engaged in commercial activities in or with China to understand how transparent the SCS is to them and to gather their perceptions about the role of the system in increasing the transparency of the Chinese business landscape. Our analysis of the interviews showcased an interesting contrast between reservations with respect to the system’s transparency and the belief that the SCS would enhance the transparency of the Chinese business landscape. Drawing on our analysis of the interviews, we discuss factors affecting SCS transparency and the role of the SCS in increasing corporate transparency. We further highlight that there are inherent limits when credit rating systems (such as the SCS) aim to provide transparency about market participants, while pursuing other objectives at the same time.