Spend “frivolously” and be penalized under China’s new social credit system

People who waste money on non-essentials or behave “badly” are penalized under the controversial new ranking.

In 2020, China will fully roll out its controversial social credit score. Under the system, both financial behaviors like “frivolous spending” and bad behaviors like lighting up in smoke-free zones can result in stiff consequences. Penalties include loss of employment and educational opportunities, as well as transportation restrictions. Those with high scores get perks, like discounts on utility bills and faster application processes to travel abroad.

China is currently piloting the program and some citizens have already found themselves banned from traveling or attending certain schools due to low scores. These ramifications have led to a flurry of recent criticism from both human rights groups and the press. This week alone, news outlets like Business Insider and National Public Radio weighed in on China’s social credit score and the stratified society it may foster in the communist country.

The outcry about China’s social credit score is understandable, given that the country’s authoritarian regime leaves citizens with little recourse to challenge the new system. But concerns about China’s credit system have overlooked how the US system also divides consumers along class lines — and has done so for decades. Social behaviors may not factor into US credit scores, but the idea that a person’s financial history reflects trustworthiness has long influenced employment decisions and other factors that affect Americans’ quality-of-life.

How China’s social credit score will work

China first announced that it would be devising a “social credit score” in 2014. The government said then that the system would help ensure a model society in which “sincerity and trustworthiness become conscious norms of action among all the people.” According to NPR, the fact that most Chinese people don’t have bank accounts or credit histories likely spurred the government to create a credit system of some sort.

Every citizen starts off with a score of 1,000 NPR reported the ranking as follows: 960 to 1,000 is an A; 850 to 955 points is a B; 840 to 600 is a C; and any score below that is a D, which designates the score-holder as “untrustworthy.”

While the government hasn’t made the specific methodology used to calculate scores public, one’s ranking can fall for both major and minor infractions. Serious violations include drunk-driving, embezzlement, and fraud. Much smaller violations that result in a lowered score include playing too many video games; spreading “fake news,” especially related to terrorist attacks, or refusing military service, will also lower one’s score. Sometimes people are declared “dishonest” for committing infractions the government doesn’t believe they’re truly sorry for.

Chinese lawyer Li Xiaolin found himself in this predicament last year, according to Human Rights Watch: “He tried to use his national identity card to purchase a plane ticket. To his surprise, the online system rejected it, saying he had been blacklisted by China’s top court. Mr. Li checked the court’s website: His name was on a list of ‘untrustworthy’ people.”

The courts are supposed to warn citizens before they’re added to the blacklist, allowing them 10 days to appeal the designation, but Li said he was caught by surprise. He was blacklisted for losing a defamation suit that was brought against him; he wrote an apology letter to the court as a means of making amends, and said he didn’t know that the court rejected his apology until the travel mishap. Ultimately, he had to apologize to the government again to be removed from the travel blacklist.

“Chinese government authorities clearly hope to create a reality in which bureaucratic pettiness could significantly limit people’s rights,” explains Human Rights Watch. “As President Xi Jinping’s power grows, and as the system approaches full implementation, more abuses will come.”

The social credit score has been compared to the “Nosedive” episode of Netflix’s Black Mirror in which everyone receives a social ranking determined by peers. It has also drawn comparisons to the dystopian novel 1984.

For those declared “untrustworthy,” the ability to buy business-class train tickets or to lodge at certain hotels can be rescinded. In some cases, the opportunity for their children to attend their preferred high school or college may be taken away, as may employment opportunities. (The government encourages employers to consult the blacklist before making hiring decisions.) Citizens who behave inconsiderately in public, like walking their dogs off-leash, can have their dogs confiscated and be required to take an exam to get the pets back.

Although “untrustworthy” people are punished for bad scores, citizens who rank the highest in the new system can take advantage of perks like business discounts or booking hotel rooms without deposits.

“Under the system, the elite will gain access to better social privileges and those who rank closer to the bottom will effectively be second-class citizens,” Newsweek reported about the social credit score.

The effects of the US credit system aren’t so far from that of China’s controversial system

In the United States, the credit bureaus don’t downgrade consumers for spending on things they deem silly or for being neglectful pet owners. But credit rankings in the US are set up in such a way that people with more resources get more financial breaks while people with fewer resources are routinely punished — often in ways that make little sense.

A person may end up with bad credit because he lost his job, but the fact that his credit suffered while unemployed could effectively prevent him from landing another job. According to the US Consumer Financial Protection Bureau, it is not illegal for employers to deny an applicant a job offer based on information in his credit report. This makes it that much harder for people with bad credit to get the gainful employment needed to repair their scores.

People with poor credit may also be turned down for housing, even if the reason for the would-be tenant’s troublesome credit history has nothing to do with her rental history. Someone who consistently paid rent on time but wracked up credit card debt due to medical expenses could find her housing application denied or be asked to pay a higher deposit as punishment.

By some estimates, one in five Americans has unpaid medical debt, and more than half of blacks and Latinos have medical debt on their credit cards. This not only limits rental opportunities but opportunities to buy a home, as good credit is generally a requirement for a housing loan. And lenders, of course, have historically created barriers for people of color pursuing homeownership.

Transportation and credit aren’t just linked in China but in the US too. Americans with bad credit pay more for car insurance than their counterparts with good credit. Some banks have systematically given people of color subprime auto loans, even if their credit history didn’t justify that they pay more interest.

Credit reports and scores are mirrors of our manifestly two-tiered financial system, and more broadly our system of racial wealth inequality and unequal opportunity,” Sarah Ludwig, founder and co-director of the New Economy Project wrote in a 2015 Guardian essay. “In our culture, indebtedness — and certainly failure to pay one’s debts — is deeply entwined with concepts of morality. The insidious notion that our credit history speaks to our reliability as human beings is largely taken for granted.”

The 2019 debut of the UltraFICO score, an alternative to the traditional FICO credit score, is being touted as a potential remedy for the inequities in the US credit system. Rather than focus on length of credit history, for example, it takes into consideration whether one saves regularly, maintains a $400 bank balance, avoids overdrafts, and pays bills on time.

But this alternative isn’t likely to benefit the low-income people who have to juggle bills to survive, perhaps paying the heating bill late one month and the car insurance late the next. For truly cash-poor families, regularly saving money or avoiding overdraft fees is a Herculean task. In fact, many poor people forgo bank accounts altogether because banking fees take such a toll on their finances. UltraFico might help people of average means with short credit histories, but it’s questionable if the score will change circumstances for the underprivileged.

Given how interlinked morality, debt, and credit are in the United States, some of the concerns about China’s new social credit score comes across as disingenuous. Although the system certainly raises alarms — Human Rights Watch is concerned about it, after all — the idea that the US credit system operates much more equitably is shortsighted.

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