Corporate Social Credit System: What companies should do

published on 7 October 2019 | reading time approx. 3 minutes

By Christina Gigler and Sebastian Wiendieck

In our last article about the Corporate Social Credit System (“SCS”) we summarized the current situation and information from a neutral perspective. In the following article we would like to provide recommendations on how to avoid penalties by the authorities in the first place and on how to prevent any damages against your company or brand.

First, companies should in general establish or improve their internal compliance system and make sure that deadlines and formalities in all kinds of aspects regarding their business in China are fulfilled (e.g. tax declaration, audit, payment of social insurance etc.), as most of the rating requirements are merely concerned with strict compliance with market regulations. Only a small, nevertheless not unimportant set of requirements, creates other challenges not connected to internal compliance, for instance relating to the company`s business partners. Based on the SCS, a business partner with a bad rating will also impact the rating of the company. Thus, business partners need to be carefully chosen. Unfortunately, the respective regulations do not specifically define the term “business partner”, which leads to uncertainty in practice. Based on experience so far, some authorities have considered suppliers and service providers as business partners. However, this may vary from authority to authority.

Second, companies should try to find the exact ratings and requirements applicable to them, as the applicability is different for each company depending on various factors, such as industry sector, product portfolio, import and/or export, manufacturing or trading etc.

Third, companies are advised to contact the respective authorities in order to find out about their own rating for each authority. Platforms such as the National Credit Information Sharing Platform (全国信用信息共享平台), CreditChina (www.creditchina.gov.cn), the National Enterprise Credit Information Publicity System (www.gsxt.gov.cn) or several private platforms (e.g. Qichacha etc.) publish certain company data. However, the data is only available in Chinese and in each case not comprehensive.

Fourth, companies should also check if there exist any false companies using their company name and influencing their rating by using their name. In some cases, obvious mistakes, for instance of the authority itself (e.g. spelling mistakes) could be resolved in a timely manner. However, most important for the negotiations with the authorities is to be well prepared and know about its own requirements. General complaints are likely to be dismissed by the authorities, whereas there might be room for negotiations on a decent and well-explained criticism on a specific point.  As the system until now still struggles with gaps and lack of data-sharing between different authorities, there is still the possibility to actively approach and communicate with the authorities on the enforcement of specific requirements.

Fifth, companies should not refuse a government inspection, as this might lead to a significant downgrading in the rating system.

 
For better or worse, companies registered in China will have no choice but to deal with the SCS. It is not yet too late for taking action, but the earlier the affected companies act, the better.