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The folks over at the European Chinese Law Research Hub (with thanks to Marianne von Blomberg, Editor ECLR Hub, Research Associate, Chair for Chinese Legal Culture, University of Cologne) have posted a marvelous summary of Marianne von Blomberg and Haixu Yu (Research Associate and doctoral student of the Chair of Chinese Legal Culture) outstanding article "Shaming the Untrustworthy and Paths to Relief in China’s Social Credit System."
Marianne von Bloomberg explains:The global debate around what is fact and what is fiction in China's vast Social Credit System project has overshadowed the actual innovations and challenges the project brings along. Marianne von Blomberg and Haixu Yu zoomed in on the SCS's practice of disclosing information on the "untrustworthy". They find that the SCS practices are best described as reputational regulation at an unprecedented scale and analyse whether courts can control shaming measures.
China's regulators have famously cracked down on Ant Financial's micro loans, drawing renewed attention to a collaborative business model: the partnering up of banks and FinTech companies to grant micro loans on a massive scale. What are the perks and the problems for FinTech-bank partnerships, and does the current regulatory framework address them? Robin Hui Huang and Christine Menglu Wang analyse the cases of the FinVolution Group and Ant Group to find answers and point out loopholes in current regulation.
The questions raised are central to the debates both about the character of Social credit as law, norm, or method, and the interlinking between traditional modalities of law (grounded in administrative discretion and centered on officials, and the more integrative modalities of a social credit system that affects social relations to nudge behaviors. In one sense one confronts the regulation of punishment in the era of bid data and analytics. In another it poses the challenges of integrating two distinct approaches to the management of social relations and the character of law--one formal and exogenous to its object, the other informal and endogenously relational.
I am cross posting the essay below. The original ECLRH post may be accessed HERE. And as a plug for the marvelous work at the European Chinese Law Research Hub: if you have observations, analyses or pieces of research that are not publishable as a paper but should get out there, or want to spread event information, calls for papers or job openings, or have a paper forthcoming- do not hesitate to contact Marianne von Bloomberg.
Shaming the Untrustworthy and Paths to Relief in China’s Social Credit System
A new paper by Marianne von Blomberg and Haixu Yu
Much has been said and written about China’s Social Credit System (SCS). Stories about an almighty, high-tech surveillance dictatorship that rates its citizens are persistent in global media discourse while the image of an omnipresent and omnipotent social credit score already found its way into memes. An increasing number of observers debunk the horror stories with facts and point to the low-tech nature of most SCS projects. As unfounded as many social credit stories are, they have also fuelled a long-overdue debate outside of China about data protection and the power of assessments. In a proposal for an AI regulation, the European Union cast the imagined “social credit scoring” as antagonist.
Meanwhile, the social credit stories and their policy responses abroad overshadow the actual innovations and challenges that the SCS brings to governance in China. The SCS does not have the capacity to function as the Orwellian surveillance tool it is often depicted as, but that does not mean that it is less ambitious and transformative. Zooming in on one of the multiple innovations that emerge under the SCS’s overarching aim to engineer trust, we studied the architecture behind the systematic disclosure of information on the “untrustworthy” (失信人) and, in a second part, interrogate paths to relief for targeted subjects. Those who find themselves shamed as “untrustworthy” are almost exclusively persons who have violated laws and regulations or not fulfilled court orders, rather than persons who have breached unspecified moral norms, and consist overwhelmingly of companies rather than individuals. The SCS’s shaming practices are thus best contextualized within public regulation work. Our study finds that the SCS formalizes and elevates a concept of public regulation that is best conceptualized as reputational regulation to new prominence. Shaming as a regulatory tool is not new and has been applied by state agencies globally. The Occupational Safety and Health Administration of the USA for example routinely uses its Twitter account to shame companies that violated work safety rules. However, the SCS is the first central-level government strategy that systematically implements shaming schemes in all regulatory realms from transport to food safety and equips the practice with a clear rhetorical framework. Public disclosure of compliance assessments is also a common practice in emerging, transnational ESG regimes (Environmental, Social and Corporate Governance). The driving factors of both, the SCS’s reputational regulation scheme and global ESG regimes are similar: The aim to enforce norms of public interest in the absence of an efficient and comprehensive regulatory infrastructure.
We first identify three pillars of successful reputational regulation through a review of empirical and theoretical literature on reputational regulation and then point out how the SCS realizes them.
(1) In reputational regulation, the declared purpose of the information disclosure is to punish, rather than to increase government transparency or warn of dangers (e.g., from poisoned food products). The NDRC and PBoC stipulate blacklisting and the public sharing of information on trust-breaking in their 2022 list of SCS disciplinary measures. Both sanctions are reputational only, as the more tangible punishments that come with blacklisting, such as restrictions on market access and subsidies, are listed separately. Further, a plethora of core structural policies document the punitive purpose of disclosure, for instance the foundational Planning Outline on the Construction of a Social Credit System (2014-2020) calling to “give rein to the role of the masses in appraisal, discussion, criticism, and reports, shape social deterrence through social moral condemnation, and censure trust-breaking acts.”
(2) To ensure that the public and media generate the negative publicity necessary to pressure target subjects to change, a government agency engaging in reputational regulation needs to provoke this disapproval by embedding the disclosure within a moral message. The SCS endowed the existing disclosure strategy of dual publicity (双公示), which initially promoted disclosure of administrative punishment decisions to foster government transparency, with the trust-breaking rhetoric, making it part of the SCS toolkit. Negative social credit information technically consists merely of violations of laws and regulations and is not novel. The innovation brought by the SCS is to relabel selected categories of administrative information as “credit/trust information” and publicize them as such. To information recipients, the impression conveyed is that a violator of the law in one realm is overall untrustworthy. The trust rhetoric dominates all publication formats: Blacklists and disclosure platforms carry titles such as “seriously untrustworthy companies”.
(3) Finally, reputational regulation requires that the information must be brought to the attention of actors who are in a position to exert pressure on the deviator. A variety of dissemination channels amplified by a state-dominated media environment ensure that information on trust-breakers reaches far. Apart from online platforms and local government websites, public billboards, announcements at local festivities, television and radio broadcast, ringtone announcements and various apps inform about who has been designated untrustworthy. Credit service agencies also tap into social credit information.
To summarize, the SCS drives a type of information disclosure that is intended more to punish than to warn, comes with a negative moral message, and is disseminated to the public through various channels. Regulatory shaming is, however, notorious for infringing on target subjects’ rights. Chinese literature has described the publication of negative social credit information as a new type of reputational punishment (声誉罚). The agency loses control over the scope and intensity of punishment once information is published because the punitive action itself is carried out by others. Even if a target subject successfully objects to the publication of adverse information and the agency takes it down, the reputational damage can hardly be undone. The second part of our study discusses how targets of reputational punishment under the SCS can seek legal remedy.
There are three potential paths to relief for those adversely affected by SCS-driven regulatory shaming in China: administrative reconsideration (行政复议) and litigation, internal agency controls, and the SCS’s own mechanism of credit repair (信用修复). The prior two paths may provide more or less satisfying outcomes for conventional administrative penalties such as fines, in the case of shaming however, revoking the agency’s act means only ceasing publication. Reproductions of the negative information concerned in news outlets and other channels remain in place. Additional remedies such as apologies and compensation payments appear necessary but while the Administrative Litigation Law provides for such remedies, we could not find court decisions ordering such remedial measures in social credit-related cases.
Where subjects believe to be unlawfully designated “untrustworthy” and bring the claim to court, they frequently face the following issues:
Whom to sue?
- It is often unclear which agency is to sue because a single SCS penalty can involve multiple state agencies. For example, a construction bureau in Jiangsu blacklisted a company for not paying wages to migrant workers, resulting in a different local agency acting on the information by restricting the company from public bidding. When the company sued the construction bureau, the court held that the bureau was not the defendant. It held that the correct defendant was instead the other agency that had punished the company. In other cases, the agency that administered the blacklist was held to be the correct addressee. The confusion over the correct defendant in litigation may be further exacerbated by the trend to outsource shaming work to industry associations.
Are social credit penalties litigable?
- If it was confirmed that social credit shaming measures constitute administrative punishment, the Administrative Punishment Law (APL) would apply, subjecting the shaming regulators to a series of procedures such as notifying targets beforehand and offering them a chance to defend themselves. Is SCS-driven regulatory shaming an administrative punishment? No legislation to date has clearly addressed this question. Courts regularly deny arguments that any SCS penalties, including shaming, constitute administrative punishment. Some claims have been accepted nevertheless with courts defining the SCS measure as an administrative act that has affected the plaintiff’s rights, and on this basis examined whether this act had the legal basis it needs according to law. A legal basis may consist of SCS regulations and measures issued by sectoral regulators from the ministry level down to that of local municipal agencies. In rather exceptional decisions, courts held that central-level policy documents that were not translated into local rules do not suffice as a legitimate legal basis for a social credit penalty.
Are social credit penalties subject to procedural restrictions?
- A growing number of SCS policy documents stipulate procedures for social credit penalties, which increasingly find their way into local law where they can be invoked by courts. For instance, many local and sectoral regulations stipulate a duty on the part of the regulatory agency to notify a person before entering her on a blacklist. The Jingyang District Court of Deyang City ordered an agency to delete a negative record because the agency failed to “inform the administrative counterpart of the administrative decision to be made and listen to the administrative counterpart’s statement and defence.”
Just information disclosure or a reputational penalty?
- In most instances, remedies for social credit penalties are denied because social credit measures pose conceptual novelties to adjudicators. In particular, the courts have invoked the accessory nature of publication, the necessity for government transparency, and the political priority of SCS building to reject plaintiffs’ claims. For Tianheng Investment Construction Management Ltd. from Hangzhou for example, appearing on a list of untrustworthy companies for having submitted forged materials meant the de facto end of its business, at least for the stipulated publication period of twenty-four months. However, the courts of all three instances denied the company’s claim that the disclosure was punitive, holding instead that publication was part of the agency’s duty to objectively record and publicize their decisions. In other cases, the SCS goals of building a trustworthy society and market have been invoked by adjudicators to legitimize credit information recording, scoring, and publication practices. Lianfa Construction & Engineering Ltd. had won an initial case against a local housing agency which had, without legal basis, imposed a social credit penalty. However, the court of appeal overturned the ruling, insisting that the mechanism for disciplining law-violating and trust-breaking behaviour must be perfected. As Peking University Professor Chun Peng points out, in the larger mission of SCS building, courts are not just the guardians of lawful conduct of state agencies but also “vanguards of disciplinary measures for trust-breaking”.
Litigation does little to alleviate the damages ensuing from undue shaming for trust-breakers. The clumsiness of shaming measures and their irreversibility render them hardly controllable through the judiciary. Alternatively, control mechanisms within the information handling agency may prevent undue damages. Only the ability to object prior to publication can provide an effective safeguard against wrongful shaming sanctions, and agency rules on social credit information lay down the procedures that lead to publication. However, no solution to effectively overseeing such procedural rules in the absence of judicial review has surfaced.
Finally, where target subjects admit guilt, they may obtain relief from shaming through the reintegrative path of credit repair. Credit is repaired and respective negative information publication halted if subjects correct untrustworthy conduct and eliminate negative impact, make credit commitments, participate in charitable activities, and/or undergo educational training, depending on the relevant sectoral and local credit repair mechanism. Credit repair is not strictly a remedial path as it does not operate on the premise of agency mistakes and in practice remains porous. However, with credit repair’s concept to function as a reintegrative path comes an innovation that has the potential to resolve the irreversibility of shaming: In some credit repair programs, instead of deleting the original negative record, that record is supplemented by a record of repair clearly explaining the reason for the repair and the final assessment.
Reputational regulation remains a work in progress. But is it effective? Other than traditional enforcement tools of state agencies such as fines, reputational regulation requires the cooperation of non-state actors, in this case, the shaming community which has to act upon disclosed information and exert pressure on the shamed subject. Initial studies found that company representatives across China believe reputational harm from negative publicity to be one of the key concerns with regard to the SCS. However, more research is needed to assess under which circumstances and to whom the disclosure of information on trust-breaking is relevant.
Marianne and Haixu’s paper is published with Modern China, a draft version is available at SSRN.
Marianne von Blomberg is a Research Associate at Bern University of Applied Sciences, Institute for Global Management, and is currently completing a PhD with Cologne University’s Chair for Chinese Legal Culture and Zhejiang University’s Guanghua Law School. Her research revolves around social credit regimes in China and beyond, assessment-based public regulation, and data governance. In her dissertation, she explores how the Social Credit System project in China strengthens, weakens, and transforms the law. She holds an LL.M in Chinese Law from Zhejiang University and a BA in Communication, Culture and Management from Zeppelin University. She can be contacted via Twitter @mariannehuashan or email at m.vonblomberg[at]uni-koeln.de.
Haixu Yu is a Research Associate and doctoral student of the Chair of Chinese Legal Culture. He passed the national judicial examination of the People’s Republic of China in 2014. His research interests include Chinese judicial reform and Chinese public law. Before studying in the University of Cologne, Yu Haixu graduated from the Chinese University of Political Science and Law in 2018, where he received LL.M degree, majoring in Chinese economic law and fiscal law. He received his LL.B. and B.A. degree in 2015 also at China University of Political Science and Law.
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