Foreign businesses in China are ill-prepared for the tough sanctions and constant surveillance demanded by a social credit system to be rolled out this year, a European business group warned Wednesday.
Under this new system for ranking businesses, both foreign and domestic companies will be required to install surveillance cameras in their premises and share the data with the government.
They will also be rated on their tax record and compliance with a range of existing laws, including customs or environmental regulations.
Those who violate rules will be placed in “blacklists” and subjected to “immediate and severe punishments,” the E.U. Chamber of Commerce in China said in a report published Wednesday.
The sanctions are not limited to penalties but also include more frequent inspections, customs delays, not getting subsidies or tax rebates and public shaming, the report added.
“The corporate social credit system could mean life or death for individual companies,” said Jorg Wuttke, president of the E.U. chamber.
“The overwhelming absence of preparation by the European business community is deeply concerning.”
Each company operating in China is already being assessed against at least 300 different “specific rules” ranging from emissions levels to workplace safety and complaints against their products on e-commerce platforms, government documents showed.
“Beijing plans to combine all these different ratings into a single database by the end of the year,” said Bjorn Conrad, head of the Berlin-based consultancy Sinolytics that co-authored the report.
A single score could mean that a company is penalized across China for a slip by one of its regional branches.
Companies will also be rapped for working with suppliers or partners with bad social credit.
The system will also involve the unprecedented demand that all businesses have to install surveillance cameras in their premises and transfer huge amounts of data and footage to government officials.
“Dozens of companies have raised concerns about the sheer volume and depth of data that needs to be shared with the government,” said Conrad.
“They are worried about how this data will be handled and whether business secrets will be leaked.”
Rewards for being a good corporate citizen include easier access to loans and faster government approvals – although they are very few in comparison to the penalties.
Foreign companies in China often complain about the lack of a level playing field, especially when local officials turn a blind eye to rule violations by domestic rivals.
But European companies, which often have better compliance in areas such as pollution and workplace safety, can actually benefit from the system where scores and ratings are calculated automatically, the E.U. chamber said.
The term “social credit” has made foreign firms jittery because it is also associated with another sprawling Chinese system that aims to rate individuals based on a set of government-defined criteria.