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“A huge experiment”

The social points system has an impact beyond China. What data is collected and what the system means for German companies and institutions like the World Bank is being investigated in bidt's project "Learning from the Frontrunner?"

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Prof. Dr. Eugénia da Conceição-Heldt and Dr. Omar Ramon Serrano Oswald from the Munich University of Applied Sciences/School of Governance (TUM), sinologist and business economist Prof. Dr. Doris Fischer (University of Würzburg) and computer scientist Prof. Dr. Jens Großklags (TUM) are conducting research in the project “Learning from the ‘pioneer’? A multidisciplinary analysis of the Chinese social credit system and its impact on Germany”. In the interview, they talk about the dimension of the Chinese social credit system and explain why its effects reach far beyond China.

For years, China has been working on introducing a social credit system across the country, which, among other things, observes citizens, evaluates their actions and collects this information on a kind of points account. Could you briefly explain the background?

Doris Fischer: The idea originally arose in China to assess the creditworthiness of bank customers. However, the implementation did not work out so well. The government then granted licences to companies to redevelop the technology, but was not satisfied with the result. Today, there is now a system with the government’s data and an attempt to bring it together with the companies’ data to create different types of assessments.

One pillar is to assess the creditworthiness of individuals. Then there is the attempt to educate citizens by assessing them, as well as assessing civil servants and steering over that. Then there is the assessment of companies, also with a view to their credit security, whereby the creditworthiness of persons also plays into this. These overlaps are one of the aspects in our project that interest us.

What we are seeing here is an experiment being conducted on the scale of a nation of over a billion people and businesses. No matter what the result will be – the experiment itself is of the highest scientific and social importance. From week to week many of these systems look completely different in some aspects. Without the work of projects like ours, this wealth of data and the knowledge about it would be lost.

Prof. Dr. Jens Großklags To the profile

How does such a system work technically? Does artificial intelligence also play a role?

Jens Großklags: The social points system is a huge experiment. Part of our project is to record exactly which different types of data collections already exist, how they are connected to each other and to what extent the government’s central plans correspond to reality. Technically, it is a monumental task to compile so much different data from a wide variety of sources.

On the one hand, there is behavioural data on individuals or groups of people from a wide variety of situations, be it from school, work or everyday life. And it is economic data from companies and private individuals, but also data on the work of municipalities and regional governments.

After all, a key point of the social point system is to use the evaluation of the individual or the company to reward or punish. This requires a complex system of technical procedures that can automatically verify and distribute these punishments or rewards.

Artificial intelligence may already play a role in this in the future, both in the collection and use of data.

So there is not one social credit system at all, but many different systems that run under this mantle?

Doris Fischer: There is the idea that ultimately everyone has a certain score linked to their national insurance number, but whether the information for this really flows together centrally is not so clear, even in China.

How do you get the data to research the social credit system?

Jens Großklags: Since the system is based on the idea that good and bad behaviour is brought to the public, we can observe a lot of this data. This is fundamentally different from the approach of credit rating institutions in Western countries, be it Schufa in Germany or institutions in the US.

Much of what would normally happen behind the scenes is actually accessible here.

Prof. Dr. Jens Großklags To the profile

In the project, you are also investigating effects of the social credit system on an international level. What might these be?

Eugénia da Conceição-Heldt: We know from our previous research that China is trying to change the rules of the game of global economic institutions like the World Bank and IMF.

Under China’s leadership, new multilateral development banks have emerged, the New Development Bank and the Asian Infrastructure and Investment Bank. The rules of democratic influence and accountability mechanisms that exist in the World Bank are not as strong in these new banks.

The question is to what extent is China trying to export the social point system as a new regulatory model and how will the other countries react to it.

Prof. Dr. Eugénia da Conceição-Heldt To the profile

This is related to broader systemic issues of the liberal international order, namely to what extent China’s economic, political and ideological influence contributes to a diffusion of Chinese rules and norms.

Studies on the “Chinese Belt and Road Initiative”, on the “Beijing Consensus” in development policy as well as on the impact of Chinese investments in Africa show that China’s influence in global governance not only has an economic dimension, but also increasingly changes rules, norms and policy-making internationally.

For this reason, we are also interested in the question of the extent to which there are imitators, that is, whether other states copy the Chinese model and whether the data collected by the Chinese government on “good and bad behaviour” is used by other entities, i.e. states, international organisations and NGOs.

Omar Ramon Serrano Oswald: One weakness of China is that it has so far had difficulty implementing its own regulations. The social credit system is now a way to change that.

It could be a whole new model of regulation also at the international level. The rules that now govern the world economy are created by Europeans and Americans.

It is quite possible that the Chinese model will be of interest to emerging countries that have similar implementation problems with their own regulations.

Prof. Dr. Omar Ramon Serrano Oswald To the profile

There could be different mechanisms. On the one hand, the spread of the social credit system could work through the market, when companies that were involved in the development of the social point system are now doing projects elsewhere. This is the case, for example, with the Digital Silk Road, which is part of the multi-billion dollar Chinese Belt and Road Initiative, with which China is opening up trade routes in Asia and Europe.

But it is also possible that the system will be adopted by multilateral organisations.

Eugénia da Conceição-Heldt: The World Bank has already excluded one of the most important Chinese companies, the China Communications Construction Company, from its development projects – following its own evaluation criteria.

The question is whether there could be a conflict of rules if, for example, companies are excluded from the World Bank that are well rated in the SCS (Social Credit System) or vice versa. There is also the question of whether the World Bank uses Chinese ratings when awarding development projects. We also want to find that out during the project.

In the project, you are also dealing with the effects of the Social Credit System on companies. What do they think about the system?

Doris Fischer: In our sub-project, we are investigating whether companies use it themselves and to what extent attempts are made to steer them through it.

International companies do not only see the system negatively.

Prof. Dr. Doris Fischer To the profile

For them, it is now proving to be an advantage that they tend to perform better than Chinese companies in terms of compliance with rules.

But there are also uncertainties about the extent to which individual behaviour of managers is included in the assessment. This is, of course, something that is very foreign to us in Germany.

Bavarian and German companies that are present in China are already part of these positive and negative lists, the red and black lists that China is now compiling.

Prof. Dr. Omar Ramon Serrano Oswald To the profile

What does the system mean for Chinese companies?

Doris Fischer: It can have a positive impact on medium-sized companies that have so far only operated in the Chinese orbit. In China, trust in business relationships is traditionally established through laborious processes: People get to know each other, go out to dinner and so on. This is quite different from Germany, for example, where trust is created through the institutional framework, such as the BGB, in which one is embedded.

In Chinese documents on the social point system, one of the reasons given is that the traditional way of creating trust in China no longer works today and, above all, is too cost-intensive to do international business.

So it can be positive for Chinese companies to become more transparent and thus be trusted more.

The social credit system is viewed critically in the West, among other things, because it is supposed to influence the behaviour of individuals. However, this is also the case with the behavioural economics concept of nudging. Do you take that into account in the project?

Jens Großklags: Nudging is already much more widespread than one would assume. There are departments at government or NGO level dealing with nudging in all regions of the world and in most countries. The idea of nudging is that, without providing hard economic incentives, you guide people in their behaviour in a certain direction.

The classic example is organ donation, where there are two approaches: Either everyone decides for themselves whether they want to be an organ donor, so they have to actively agree. The other approach is to make everyone an organ donor automatically, unless one objects. Depending on which rules apply, there are big differences between countries in the willingness to be organ donors.

In our project, we also want to investigate the developments of nudging approaches and compare to what extent such procedures are applied in the Chinese social point system. This plays a role in assessing whether fears are justified that the social credit system in China interferes too intensively with the market and the autonomy of the individual.

A fundamental difference between the Chinese social credit system and many Western approaches, be it nudging or credit scoring, is that a lot of data is disclosed and so-called public shaming is factored in. This is an approach that is deeply rooted in Chinese culture. There, even in kindergarten, there are so-called Honor Rolls that make good and bad behaviour visible.

Doris Fischer: Public shaming and blaming is inherent in Chinese society, which is why the population is not so upset about the social credit system.

When I was a doctoral student in China in the 1990s, there was a notice in the entrance of the dormitory showing which of the language course students regularly came to class, who was late and who took the exam and how – everything was public.

In Germany, on the other hand, reports are mainly critical of the social point system. How do you see it?

Eugénia da Conceição-Heldt: Big tech companies like Google and Facebook accumulate enormous amounts of data about us.

<br>Suddenly the social point system is there and there is a lot of agitation because China is an authoritarian system.

Prof. Dr. Eugénia da Conceição-Heldt To the profile

Facebook has come under criticism for the way it handles the data it collects. Unlike the social credit system, which is relatively transparent, you can’t say that about tech companies. So our project has a high relevance to daily politics.

There is a great deal of public interest in the social credit system and a need to understand it. Many suspect that it is not limited to China, but that the topic will also affect our society.

Prof. Dr. Doris Fischer To the profile

Doris Fischer: I think the negative image comes from the fact that so many things are mixed up in the reporting: a fear of the Chinese political system, social scoring, image and video surveillance.

We chose the title of our project “Learning from the Frontrunner?” in the team because there are similar ideas in the West and politics demands to keep up with new technologies. With social media, it is already the case that Western companies are now copying Chinese providers and not the other way around. I think you can look at this system without the presupposition that it is necessarily only conceivable in an authoritarian system.

We in the West like to pretend that it is, because then we don’t have to worry about our systems. But to say that only China does this kind of thing runs the risk of overlooking what might be going on in our own societies.