China: China's Social Credit System – Another "To Check" Item For Due Diligence And Hiring Process?

Last Updated: 27 March 2019
Article by Anthony Kerr

In 2014, the Chinese government announced a plan to set up a social credit system by 2020. It will be a reward and punishment system to promote trustworthiness and integrity, aimed at improving governance. While a lot of commentators are talking about this system as some sort of a doomsday system, the reality is that it is a lot more similar to financial credit checks but with a wider coverage. Thus, companies that are trading with, have a presence in, or looking to move into the Chinese market, need to be aware of this new social credit system. Today, more than 40 different government or private social-credit systems are operating across China. These systems monitor and collect data on individuals and companies. Participation in such private and government systems is seemingly voluntary. However, in the future, the official social credit system will most likely be mandatory. 

What is the Social Credit System?

When fully implemented, the social credit system will be a nationwide scoring system allowing the government to rate a citizen or a company's trustworthiness beyond their financial creditworthiness. Launched in 2014 as a roadmap to build a system with mechanisms for rewarding trustworthiness and punishing untrustworthiness, China's social credit system is still in the development stage. 

Like many developing countries, China's economic growth has outpaced its ability to create and police institutions that promote trust between citizens, businesses and the government. China has also undertaken major legal and regulatory reforms as it integrates into the global trading community. While some of those changes targeted inward investments and cross border movement of goods, a large number of changes also aimed at policing the way their own citizens and Chinese-owned companies behaved. However, enforcement remains a challenge.

Chinese citizens maintain a healthy distrust of companies. Recalling the 2008 Chinese milk scandal where infant formulas were adulterated with melamine, Chinese parents remain, to this date, distrustful of the country's dairy industry, and other food producers, as evidenced by the huge volumes of such products purchased by Chinese citizens on overseas trips to Hong Kong, New Zealand and Australia. And despite the progress made by China's government in reforming intellectual property protection laws, regulations and processes, China is still considered the counterfeiting capital of the world. 

At the individual level, due to scams and fraud, there is also a lack of trust between individuals. 

What happens if you are blacklisted?

As the new Social Credit System does not fully exist yet, it is difficult to assess the full impact on Chinese citizens and companies. However, it would be instructive to look at the various private and government systems currently in place. 

The 2018 annual report released by the National Public Credit Information Centre (NPCC) stated that over 3.59 million Chinese enterprises have been added to the official creditworthiness blacklist. For example, a health care product maker, which was accused of making false marketing claims about the benefits of a product that a young cancer patient took, was added to the creditworthiness blacklist. A Chinese vaccine manufacturer, was fined US$1.3 billion and was added to the creditworthiness blacklist.

Being on the blacklist means that:

  • Companies can lose out on government contracts and bank loans, and be restricted from importing goods. 
  • Individuals could be banned from a wide range of activities, including travel restrictions. Employees may also be prevented from representing companies or taking senior management roles.

Currently, the various private and government systems do not provide official advance notification to a person or company of their creditworthiness status, and there is little a blacklisted company or person can do to get off the blacklist. There is, however, a little relief under the government systems as removal from the blacklist may simply involve paying delinquent bill(s) or appealing to the court. 

What companies should look out for?

The social credit system is already in place in various permutations, and will continue to be developed more expansively into a nationwide system. For businesses, there are potential areas of risk to their operations. 

As the government system develops, we expect to see more linkages from the various private sector systems to the government system, giving the government access to a colossal amount of data on citizens and local companies. Inferring from the types of punishment currently being applied, individuals and companies may be prevented from undertaking certain normal activities. 

The following are some scenarios that may happen and companies should prepare for: 

  • A key employee whose role involves substantive domestic and international travel gets blacklisted. The blacklisted person may not be allowed to travel via air or high-speed train, and may not be able to act on behalf of the company in discussions with government departments such as China Customs or the State Administration of Taxation. The employee may be unaware of the blacklisting until booking a flight or making a customs import declaration.
  • A manufacturing company in China is either outsourcing some of its manufacturing to a third-party, or sourcing parts and components from a local third-party supplier. The third-party gets blacklisted and is no longer able to complete its obligation to supply the manufacturing company. If this third-party is a key component supplier and is supplying on a just-in-time basis, the manufacturing company may have to close its production line until it finds another supplier or it tries to help the third-party clear itself off the blacklist through the payment of fines or unpaid bills. 
  • A company outside of China has contracted with a company in China to be the importer and distributor of their product in China. The Chinese company gets blacklisted and is no longer able to import products or make payments to the supplier of the product.

If the above scenarios occur, the damage to an unprepared company may be substantive. Companies may take the following actions to mitigate such risks:

  • Contractual agreements with third-parties and employment contracts should contain provisions dealing with situations of blacklisting.
  • Due diligence on a new employee or new third-party service provider should include reviews of the government blacklist(s), if available.
  • The company's quality/internal controls should cover regular updates of the blacklist(s).
  • Ensure that there is a suitably qualified and approved person who can immediately assume the duties of the blacklisted person. Consider appointing more than one third-party supplier of key components so if one is blacklisted, the other(s) can immediately take over.

Visit us at

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2019. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions