27 September, 2019
In June 2014, State Council unveiled a 6-year plan aiming to establish a mechanism to build public trust in market actors (the "Plan"). Government authorities, judicial institutions, companies, non-profit organisations, trade associations, individuals and other market actors will be covered by the mechanism.
The aim is to fully implement the Plan by the end of 2020. Its vision for the future entails the following:
1.) Laws, administrative regulations and standards for building and improving Social Trust will be established.
2.) The social credit system and corresponding supervision system will be brought to a close.
3.) The credit-rating service market will be improved and incentives for compliance and disciplinary mechanisms for dishonesty should start to apply.
To achieve this vision, the Plan states that efforts should be focussed on four fields: government; business; public and social affairs; and judicial affairs.
- The Plan proposes that all levels and regions of the People's Government should strictly fulfil their commitment to society, improve the Government performance evaluation system, assess the quality of services provided by the Government, and enhance achievement of economic and social development goals as well as the actual execution of their work as set out in Government work reports and plans. Local protectionist measures, such as abusing administrative power to block the market, violating laws and regulations and dishonesty in administrative areas must be avoided.
- For business affairs, the Plan states that there should be an improvement in the public's trust in market actors for production, construction, commodity circulation, pricing, tax, government procurement, online business etc. Relevant measures to achieve this goal include establishing a production safety credit announcement system serving to publish and punish dishonest behaviour that endangers the safety of production, and establishing both a credit system of taxpayers and a blacklisting system for any serious violation of tax law.
- Regarding public and social affairs, the Plan proposes for example in the employment area, to establish system for publicising employers' arrears of wages and legal violations, and to improve the labour security credit rating system. Furthermore, the Plan suggests that the Government should encourage enterprises to actively develop amicable relations with their employees, and protect and improve the flexibility of the human resources market. It also recommends that educational institutions and teachers should educate students to act with integrity and honesty and to assist in establishing a society that is founded on trust.
- Improving the public's trust in judicial institutions is an important part of the concept of Social Trust. For example, People's Courts are encouraged to share information about trials within the four levels of national four-level courts. This information sharing would serve to promote the disclosure of information and increase efficiency in enforcement.
The Plan suggests that a social credit recording and sharing system will lay the foundations for a more transparent and trusting society. It recommends that industry based databases should be established, and that local government should collaborate on the production of a comprehensive information sharing platform for the whole of society to use. For example, Credit China (www.creditchina.gov.cn) which went on-line in June 2015 and the National Enterprise Credit Information Publicity System (www.gsxt.gov.cn) which was set up in December 2016 are two important web platforms for social credit information recording and sharing. The former publishes key credit information on companies and individuals, including a list of blacklisted entities. The latter provides basic corporate information for all legally registered companies (such as the name of the legal representative, the shareholder of the company, management information and lawsuits). On this platform, you can search by a company's name or Unified Social Credit Code.
For substantiated dishonest behaviour of market actors, the Plan states that sanctions will be imposed. Where an entity is blacklisted, a comprehensive list of joint sanctions applies. These sanctions not only include penalty fees, but also higher inspection rates and targeted audits, restricted grant of Government approvals (e.g. investment permits), exclusion from preferential policies, restrictions on participation in public procurement. The negative impact on reputation will also be significant. Sanctions can even personally affect the legal representative and key personnel of a company.
So far, a number of regulations and standards at central and local levels have been published with the aim of achieving greater Social Trust, however, these are not yet systematic. Some Government departments which have a greater ability to collect information on compliance and dishonesty, such as the tax, customs and employment authorities, are starting to take steps to create industry-based databases in line with the Plan. However, it is currently difficult for different regions and departments to share data between them. In addition, sanctions imposed by some local authorities in areas where systems of enhancing Social Trust have been piloted have been questioned by scholars, locals and the media. It is clear that the Plan has a long way to go before it can be fully established and implemented.
Ying Wang, Partner, Bird & Bird
ying.wang@twobirds.com
