China's Corporate Social Credit System and the Dawn of Surveillance State Capitalism

China's Corporate Social Credit System and the Dawn of Surveillance State Capitalism

Lauren Yu-Hsin Lin, Curtis J. Milhaupt

Series number :

Serial Number: 
610/2021

Date posted :

October 12 2021

Last revised :

October 12 2021
SSRN Share

Keywords

  • State Capitalism • 
  • Chinese Communist Party • 
  • Corporate Compliance • 
  • Regtech • 
  • Social Credit System

Chinese state capitalism is transitioning toward a panoptic, technology-assisted variant that we call “surveillance state capitalism.” The mechanism driving the emergence of this variant is China’s corporate social credit system (CSCS) – a big data project to evaluate the “trustworthiness” of all business entities registered in the country.

The CSCS is linked to a system of corporate rewards and punishments, representing a futuristic strategy of automated screening to determine which enterprises are allowed market access and benefits. In this paper, we explore the conceptual and operational linkages of the CSCS to three contemporary phenomena in the global political economy: the surveillance state, surveillance capitalism, and state capitalism, and their assemblage in China into a big-data-driven corporate behavior modification program in service of the party-state.

We provide the first empirical analysis of the CSCS scoring system, based on its recent rollout in Zhejiang Province, one of the first to implement the CSCS at the local level. A key finding is that while the CSCS is a facially neutral means of measuring legal compliance, politically connected firms (regardless of their status as state-owned or private enterprises, or the extent of state equity ownership) receive higher overall scores in Zhejiang. The channel for this result is a “social responsibility” category that valorizes awards from the government and contributions to Chinese Communist Party (CCP)-sanctioned causes. We find no significant evidence that better-governed firms or more profitable firms receive higher overall scores, although highly leveraged firms, subject to higher default risks, are associated with lower total scores. These results underscore the potential of the CSCS to nudge corporate fealty to government and CCP policy, raising the specter of high-tech central planning at the dawn of Chinese surveillance state capitalism. While our findings, based on the first available scores from a single province, have clear limitations, they provide an early window into the design characteristics, operation, and potentially far-reaching implications of the CSCS for the country as a whole.

Authors

Real name:
Lauren Yu-Hsin Lin