Washington, D.C. – Today, U.S. Senators Michael Bennet (D-Colo.), Mike Braun (R-Ind.), Rob Portman (R-Ohio), Chris Coons (D-Del.) and 21 of their colleagues sent United States Trade Representative (USTR) Ambassador Robert Lighthizer a letter outlining their concerns with the Chinese government’s efforts to develop and deploy its Corporate Social Credit System (Corporate SCS). The Corporate SCS represents China formalizing a system to punish American companies and workers for speaking out against the Chinese government. The letter asks Ambassador Lighthizer to prioritize research and analysis into the Corporate SCS and the implications such a system may pose for American workers, companies, and investors.
“China’s Corporate Social Credit System is a potentially alarming development given the country’s escalating censorship of the media, internet, and arts in recent years,” said Bennet. “This system may have troubling consequences for American companies and workers conducting business in China and the region. The U.S. government should proactively study the impact of this new system and develop a clear strategy to address its potential challenges.”
"If the Chinese government implements the Corporate Social Credit System in a manner hypothesized in its party statements, it will pose a grave threat to American workers and businesses," said Braun. "I look forward to working closely with the Trump Administration in monitoring the creation of this system and in protecting Americans from the internationalization of Chinese state-driven policies."
“The inequities and imbalances in our trade relationship with China are well known,” said Portman. “China’s proposed corporate social credit system will only perpetuate those inequities and imbalances by using state-backed economic power to bend American companies, including their employees, to Beijing’s will. What we saw recently with respect to the NBA is not an anomaly, which is why our government needs to treat the impacts of the corporate social credit system as a priority.”
“The Corporate Social Credit System is only the most recent example of China’s efforts to exercise control over the activities of individuals and businesses operating within China. American companies need to decide how to respond to Chinese attempts to stifle freedom of speech. I look forward to working with the U.S. Trade Representative and my colleagues in the Senate to make sure we understand the impact of the Corporate Social Credit System on American companies and the values that make us unique,” said Coons.
The text of the letter is available HERE and below.
Dear Ambassador Lighthizer:
We write to express grave concern over the Chinese government’s continued efforts to develop and deploy its Corporate Social Credit System (Corporate SCS), and the implications such a system may pose for American workers, companies, and investors. Specifically, we ask that the Administration include research and analysis of China’s Corporate SCS in future reports produced about China and the conditions of commerce between our two nations.
In 2014, the Chinese Communist Party issued its “Planning Outline for the Construction of a Social Credit System (2014-2020),” which telegraphed the Party’s efforts to create a unified algorithmic system to grade both domestic and international firms against more than 300 state-determined criteria, with the goal of “building a Socialist harmonious society.” In practice, we worry that many of the criteria envisioned under the Corporate SCS could be used to:
- Coerce the onshoring of research and development by U.S. companies within China’s borders;
- Require technology transfer or otherwise make it easier for Chinese interests to steal American intellectual property; and
- Coerce American corporate support to China’s industrial and foreign policies (like Made in China 2025, the upcoming 14th Five-Year Plan, and policies towards Taiwan).
Indeed, all corporate data collected and processed through the Corporate SCS will travel through basic infrastructure, databases, and algorithms managed by a consortium that includes Taiji Computer, Huawei, Alibaba, Tencent, and VisionVera. Key criteria informing the algorithms of the system could also be implemented in a manner that allows the Communist Party to extraterritorially pressure compliance with party doctrine and to suppress dissent. An August 2019 report prepared by the European Chamber of Commerce in China stresses that the “[Corporate SCS] will fundamentally change how business is done in China for every company and stakeholder in the Chinese market.”
Once the Corporate SCS is fully operational, firms with scores below a certain state-determined threshold will face an interlocking series of sanctions across multiple Chinese government agencies, including restrictions on procurement and business licenses, less favorable interest rates, higher inspection rates, and even potential debarment from the Chinese market. Scores can be affected not only by the actions of the company and its employees, but also by the actions of supplier or partner companies, extending the threat of Chinese retaliation to any American firm with a presence, or supplier, in China. In short, the Corporate SCS raises fundamental questions about whether promised market openings and regulatory reforms on paper will yield a level playing field in practice for American firms doing business in and with China.
Equally, if not more concerning, penalties under the Chinese Corporate SCS could extend to the employees of American firms, including U.S. nationals. As a punishment for individuals representing companies deemed “untrustworthy,” the Chinese government envisions levying travel restrictions, tax discrimination, personal sanctions, and other retributions. In this respect, there are few punishments that can be ruled “off the table,” as the Communist Party’s disregard for the rule of law, checks and balances, transparency, and a free press could result in a broad array of unjustified punishments.
While the Corporate SCS is still in development, the skeleton of the system is coming online and already presenting serious challenges for U.S. companies. In September, news reports indicated that the Chinese Communist Party threatened to reduce the social credit scores of American companies unless those companies acknowledge Macau, Hong Kong, and Taiwan as part of China.
What our country witnessed recently with respect to the National Basketball Association (NBA) over a tweet by one American team’s general manager is not an aberration, but the latest in a litany of attempts by China to deploy its state and economic power to bend American entities to its will. It seems the SCS is designed, in part, to further and formalize this practice. For these reasons, formal U.S. government research, reporting, and analysis about China’s Corporate SCS is critical to examining the terms of competition for our companies operating in and competing with China. Given the high stakes for open markets and our free market system, we urge you to ensure that this system is closely examined and considered in all relevant U.S. government reports.