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Illustration: Sarah Grillo/Axios

China's push to implement a national social credit system attracts rapt attention around the world, though it is in its earliest stages — not yet influencing the daily lives of most Chinese citizens and largely opaque to outsiders.

Why it matters: It's already affecting foreign businesses, which have been placed on blacklists or threatened with restrictions on market access.

The big picture: Five years ago, China announced that it intends to build a comprehensive system for tracking the reputations of every individual and firm throughout Chinese society, with the groundwork in place by 2020.

  • The ultimate vision is an apparatus that rewards trustworthy people and businesses, and punishes those who violate laws and norms defined by Communist Party authorities.
  • Some of the earliest moves toward the goal have been focused on gathering and using information about businesses.
  • Experts worry it could eventually allow China to strengthen its control over foreign companies and boost domestic ones, entrenching the new borders of a splintering world economy.

How it works: The current reality is a mess of programs administered by cities, provinces and the central government, and little certainty about who is in charge of knitting them together.

  • They are largely driven by blacklists — a consequence for rule-breaking that often comes with a penalty — and "redlists," a marker of good reputation.
  • Punishments and penalized behavior vary from industry to industry.

Officially, the system targets corruption and bad business practice. But experts worry that China, often accused of anti-competitive measures, could use blacklisting to legitimize arbitrary punishments against non-Chinese businesses.

  • It will likely be used "to bend entities outside China’s borders towards the [Chinese Communist] Party’s political objectives," said Samantha Hoffman, a fellow at the Australian Strategic Policy Institute, testifying in May before the House Intelligence Committee.
  • Blacklists may "target foreign companies that are competing with Chinese companies or harming development of Chinese companies," said an analyst from consulting firm Verisk Maplecroft who asked not to be named.

According to translations of government documents that the U.S.–China Business Council (USCBC) shared with Axios, potential sanctions include:

  • Restrictions on licensing and operating permits
  • Increased police or regulator inspections
  • Denial of government funding or tax breaks
  • Being flagged as risky in search results

"There's not a lot of direct impact on U.S. companies yet," says Jake Parker, vice president for China operations at USCBC, which represents U.S. firms doing business in China.

But early credit-related punishments have businesses on edge.

  • Last year, four U.S. airlines received letters from China's aviation ministry demanding they list Taiwan as part of China.
  • A U.S. industrial chemicals company operating in China was told that it had to start prepaying its phone bill in person, Parker tells Axios, as result of an unrelated tax issue entered into the social credit system and shared broadly.

Initially, the effects of the social credit system aren't likely to shake a firm's foundations. "For a company that's already regulated, it doesn't seem to add all that much more," says Jamie Horsley, a fellow at the Paul Tsai China Center at Yale Law School. But a lack of information makes the coming impacts hard to estimate.

What's next: Down the road, if the systems are integrated and data is shared across cities, provinces and government agencies, businesses will find themselves even more closely watched, and their actions reverberating throughout the country.

The Chinese embassy in Washington did not respond to requests for comment.

Go deeper

Kendall Baker, author of Sports
Updated 6 mins ago - Sports

College football gone mad

Former Notre Dame coach Brian Kelly walks in front of his players. Photo: David Madison/Getty Images

In the span of two days, the head coaches of two of the biggest college football programs in America have jumped ship, wooed by even greater challenges — and the almighty dollar.

Driving the news: Lincoln Riley is ditching Oklahoma for USC in a deal reportedly worth $110 million. LSU poached Brian Kelly from Notre Dame with a reported 10-year, $100 million contract.

Media startups anxiously await BuzzFeed’s stock market debut

Illustration: Sarah Grillo/Axios

Digital media companies considering going public are watching BuzzFeed's expected stock market debut next week to see how investors will respond.

Why it matters: A slowdown in SPACs (special purpose acquisition companies) earlier this year pushed some digital media companies that were considering going public via SPAC IPOs away from the idea, such as Vice.

Retail's IOU boom

Black Friday shoppers in Skokie, Ill. Photo: Joel Lerner/Xinhua via Getty Images

Here's a staggering stat: Americans' use of "buy now, pay later" options increased 438% between November 2019 and November 2021, according to an Adobe analysis reported by Retail Dive.

Why it matters: This is one of the biggest new trends in shopping right now. People are getting more and more comfortable with apps like Afterpay, Klarna and Affirm that facilitate "buy now, pay later," and let customers spread out the cost of purchases over a long period of time without a credit card.