China’s Big Brother Targets Business

China is funneling vast amounts of public and private data into huge databases aimed at tightening its control over its nearly 1.4 billion people.

But the business world has become its biggest target.

Beijing is increasingly amassing information now divided among various government agencies and industry associations — including court decisions, payroll data, environmental records, copyright violations, even how many employees are members of the Communist Party — and using it to grade businesses and the people who run them, according to state media, government documents and experts.

Companies that get low grades can be banned from borrowing money or doing other essential tasks. Their owners or executives could have their bank accounts frozen or be forbidden from traveling.

It isn’t just aimed at Chinese businesses. In letters sent to the companies, officials have threatened to give United Airlines, American Airlines and Delta Air Lines black marks on their records if they don’t bend to Beijing’s wishes. FedEx could face a similar punishment.

China calls it the social credit system. By next year, Chinese leaders had hoped to start an ambitious nationwide program focused on punishing or rewarding individuals. It was aimed at replicating the credit scoring system common in the United States and other places, as well as taming behavior in a country where laws are inconsistently enforced.

Civil libertarians warned that it would create a digital Big Brother that would intrude into everyday Chinese life. But the system has yet to materialize for individuals on a mass scale.

For many businesses, however, social credit has become a fact of life. In September, China’s central economic planning agency announced that it had completed a first evaluation of 33 million businesses, giving them ratings from 1 for excellent to 4 for poor. China hopes it will someday become a nationwide regulatory tool, harnessing the country’s growing skills in big data and automation, to help the Communist Party keep the business world in line.

“It’s supposed to affect the decision-making of businesses to conform to what the party wants,” said Samantha Hoffman, a fellow at the Australian Strategic Policy Institute, a think tank.

Loren Fei, the 30-year-old-daughter of a silk factory owner, has been added to a blacklist of businesses and their owners. Because her father couldn’t pay his bills, she said, her bank accounts have been frozen and she lost her job and her ability to travel.

“My family really wants to pay back the money, and the system is making it impossible,” Fei said.

Authorities are testing the system as a tool to bend foreign companies to the Communist Party’s political views.

United, Delta and American received letters last year from Chinese aviation officials saying their social credit score could be hit unless their websites labeled Macao, Hong Kong and Taiwan as part of China. Lower scores would lead to investigations, the possibility of frozen bank accounts, limitations on local employees’ movement and other punishments, according to a letter sent to United and seen by The New York Times.

Representatives of United, Delta and American Airlines confirmed changing their websites but declined to comment specifically on the matter.

Social credit is one aspect of the Communist Party’s efforts under Xi Jinping, its top leader, to strengthen its hold over the country. Authorities are installing separate facial-recognition technology and other monitoring systems to quell dissent as well as stop crime. They have taken a tougher line on media and worked to give the party a greater role in offices and classrooms.

Applied to businesses, the social credit system could bring real benefits to China. Despite Beijing’s authoritarian grip on power, it has long struggled to get businesses to follow the law. Competing, inefficient government ministries hinder enforcement. Local governments shelter powerful businesses. The result has been widespread pollution, rampant violations of labor laws and other problems.

For instance, Fei said that for years her family’s silk factory had been given dispensation to break environmental rules by local government authorities eager for economic growth. It was finally shut down for environmental reasons.

But companies have little recourse if the data is inaccurate or punishments disproportionately disruptive, experts said.

“The unified rewards and punishment system significantly increases the potential for one violation to snowball across your operations until you have this avalanche of penalties that make it impossible to operate until you solve that one thing,” said Kendra Schaefer, head of digital research at Trivium China, a consulting firm that recently published a report on social credit.

Foreign companies have expressed concern about how they could be affected by their business partners. The German chemical company BASF, for example, is responsible for ensuring that its Chinese partners stay environmentally compliant.

“They put pressure on us in the supply chain to sort out the environmental challenges,” said Jörg Wuttke, president of the European Union Chamber of Commerce in China, who is also the chief representative of BASF in China. “That’s a definite shift that puts a lot of pressure on us.”

Foreign businesses also worry that social credit could become a weapon in the trade war between China and the United States. In a report last month, the European Union Chamber of Commerce cited the example of FedEx, the U.S. package carrier, which has been caught in the middle of the trade fight. The Chinese government has threatened to place FedEx on a list of foreign companies and people it considers unreliable, alleging that it broke the law by withholding the shipment of Huawei products. The language used was similar to social credit.

Chinese officials have not released the list or said what it would do, but they have said they will treat all companies equally.

[“source=moneycontrol”]