China's social credit system for individuals and businesses

China provides numerous opportunities for foreigners with skills and talents looking for jobs, as well as for any foreign individuals or organizations to establish a business in China. To work in China, it is advised you have a comprehensive understanding of China's social credit system. How does it work? What are the penalties and rewards in the so-called Chinese social credit system? How does the system impact expats in China?

Here’s a helpful guide to the social credit system in China. What’s more, Wise, an international money transfer provider is introduced for individuals and companies to send money out of China. You can also create a Wise multi-currency account to receive, convert, and hold different currencies conveniently and affordably.

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Table of contents

What is China's social credit system? How does China’s social credit system work for individuals? How to check your social credit report in China? What happens if you're blacklisted? Are foreigners in China impacted by the social credit system? How does China’s corporate social credit system impact my business? Rewards in China’s corporate social credit system⁴ Penalties in China’s Corporate Social Credit system⁴ Wise: a cheap and hassle-free way to transfer your earnings out of China!

What is China's social credit system?

Unveiled in a State Council plan from 2014, China's social credit system (SCS or SoCS Chinese name: 社会信用体系) is an important part of China’s socialist market economic system and social governance system. It is based on laws, regulations, standards and contracts, and covers a network of credit records and credit infrastructure for members of society¹.

Key areas of focus in the construction of China's social credit system include political integrity, business integrity, social integrity and judicial credibility.

The system also establishes a mechanism of rewards and penalties, with the aim of improving the sense of integrity and creditworthiness of Chinese society as a whole.

How does China’s social credit system work for individuals?

China’s credit system establishes a mechanism for sharing personal credit information through the collection, collation, preservation and processing of individuals' basic information, credit information, and other information reflecting their credit status. The types of personal information handled by the credit collection system mainly include basic personal information, credit transaction information and public information².

Adverse information in a personal credit report is retained for five years from the date of termination of the adverse behaviour or event.² Positive information is an individual's credit asset and is always displayed on the credit report.

At present, there are three versions of personal credit reports，suiting the proposes of three different institutions or individuals:²

1. The credit-granting institution version, which is provided for use by credit-granting institutions such as commercial banks, insurance companies and securities firms to meet their credit business risk management needs.
2. The personal or individual version, which is provided to individuals for their right to know their own credit information and to carry out their social and economic activities.
3. The state institution version, which is provided to state organs and judicial departments for the purpose of performing their duties in accordance with the law or for judicial investigations.

How to check your social credit report in China?

There are three ways to enquire about your social credit report²:

1. Go to the branch of the People's Bank of China in your city and make an inquiry through manual service counters or self-service enquiry machines, with your original ID card.
2. Log on to the official website of the Credit Reference Centre, and visit the personal credit information service platform for enquiry.
3. Enquire through online banking, mobile phone APP and self-service ATMs or bank teller machines of commercial banks such as ICBC, CCB and China Merchants Bank. Individuals are entitled to obtain their credit reports twice a year free of charge.

What happens if you're blacklisted?

Fact: The Credit Reference Center of People's Bank of China merely keeps records. They do not assess personal credit. However, the personal credit record includes details regarding past-due or overdue payments as well as loan and credit card repayments over a predetermined length of time³.

The so-called “blacklist" usually refers to a bank's record of late payments or defaults on an individual's credit report, which can directly affect an individual's ability to obtain a loan from a bank, among other things. This is essentially the same as credit rating in the west.

Are foreigners in China impacted by the social credit system?

As we previously stated, those who come to work in China on visas from other countries should pay attention to China's social credit system, as government agencies and credit granting organizations, including commercial banks, may look at your credit report.

Like Chinese citizens, foreign nationals can also check their personal credit reports at a local branch of the People's Bank of China, from the Credit Reference Centre, or online via an authorized commercial bank.

If you are a foreign company operating in China, your business will be registered as a tax-paying entity and get a corporate social credit score.

How does China’s corporate social credit system impact my business?

Tax authorities will collect a wide range of indicators to score and evaluate the credit level of taxpaying entities - individuals and businesses and upgrade or downgrade them according to actual measured changes.

Corporate tax credit scores are divided into four levels on a percentage basis, with grades A, B, C and D for scores of 90 or more, 70 to 90, 40 to 70 and less than 40, respectively. Grade D can also be determined by direct judgement on the basis of tax offences, e.g., evasion of tax payment, evasion of tax arrears recovery, providing false declaration materials to enjoy tax incentives, etc⁴.

Rewards in China’s corporate social credit system⁴

For grade A credit taxpayers, the tax authorities will take the initiative to announce the list for commendation, increase the amount of special invoices and ordinary invoices on demand.

Enterprises that have been awarded grade A credit for three consecutive years will be given a green channel or specialized personnel to assist in tax matters.

Penalties in China’s Corporate Social Credit system⁴

Taxpayers rated as grade B credit are subject to normal management, while grade C credit taxpayers are subject to strict management.

If it is determined to be a grade D tax credit, the enterprise will be subject to strict audit and supervision in the use of invoices, export tax refund audits, and tax assessment, and the penalty for violation of the law will be higher than that of other taxpaying organizations.

The tax authorities will also notify the relevant departments of their list and recommend that they be restricted or prohibited from doing business, investment, financing, and so on.

In addition, enterprises with major tax offenses such as tax evasion, tax fraud, and tax on false invoices exceeding a certain amount will be included in the “blacklist”.

The ‘blacklisted’ enterprises will not only have their names, taxpayer identification numbers, organizational codes, registered addresses, the main facts of the violations, the legal basis for the penalties, the administrative treatment, and the administrative penalties imposed, but also the names, genders, and identification numbers of the legal representatives and the financial staff of the enterprises, as well as the information of intermediary institutions and practitioners who are directly responsible for the major tax violation cases will be made public as well.

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Source：

1. China Government Website: State Council on the Issuance of the Social Credit System Construction Outline of the Plan (2014-2020)
2. Credit Reference Centre of the Peoples’ Bank of China: Introduction to Personal Credit Report
3. Credit Reference Centre of the Peoples’ Bank of China: Personal Credit Report
4. China Government Website: General Administration of Taxation promotes the construction of social credit system with rewards and punishments