Impact of Social rating on companies in China
CSCS or Corporate Social Credit System, launched in 2014, is the implementation of a scoring system for companies. The objective is to create a better business environment and more transparent market with more trustworthy players where companies that score well can expect to be rewarded.
Two key platforms are available for any firm to have a check on CSCS ranking, the NECIPS (National Enterprise Credit Information Publicity System which collects data from various governmental departments, and CreditChina which publishes individuals and companies’ red lists (well-scored list) and blacklists. Despite its name, social credit concerns regulatory enforcement of existing laws.
Data will be collected from the authority’s database but also following:
- Business partners
- Employees
- Public relations actions
- Finance
- Tax
- E-commerce transactions
- International trade flow
- Production
- R&D
- Quality control
In addition to these internal companies’ data, they will be crossed with external data as competition and all data from the company environment.
For this reason, several Memorandum of understanding (MOU) were signed, mainly in 2017 and 2018, between agencies to validate and stipulate which regulators will impose penalties or issue rewards. Each main activity is managed by an MOU with its own rules in terms of listing as well as penalties and rewards. The standardization is still in the process under the National Development and Reform Commission as the Guidance on Constructing a Long-term Mechanism for Building Integrity (Draft) notify it.
Even if the system is still in evolution in term of standardization, it is already in place and companies should already assess their potentials by:
- Understanding which MOU can be linked to their industries
- Controlling the company rating and monitor it
- Analyzing the internal and external potential triggers of CSCS rating
- Controlling your business partners, clients, and suppliers actual or future
If any point seems inaccurate or unexpected it can be good to be in link with local authorities, in-charge officers.
An external assessment, and support, can be necessary to process the internal and external control of the company and the adequation with the MOU applicable.
Some of the advantages of the CSCS good score will be:
- Preferential access to public tenders
- Lower administrative burden
- Less on-site inspections
- Better access to loans
- Easier market access
On the reverse way, on a different scale depending on the industry, negative impacts will be:
- More severe controls
- Higher administrative burden
- Less access to benefits
- Restrictions on key-personnel and employee in charge
If you would like to learn more what impact Corporate Social Credit System can have on your organization – contact us.
