Tech giants in China face fines over monopolies and the handling of user data. Chinese businesses like Didi, Alibaba, and Tencent have been hit hard by antitrust regulators crying foul over potentially monopolistic practices and privacy concerns. However, China is building an extensive “social credit system.”
China’s private sector has always maintained a delicate relationship with the Chinese Communist Party. It seemed to take a major step backwards on July 7 after three of its biggest tech companies—Didi, Alibaba, and Tencent—were hit with major fines for allegedly breaking China’s Anti-Monopoly Law. Alongside the government’s expressed concerns over the companies not requesting legal permission for various mergers and acquisitions, there were also complaints of how they handled users’ data.
At the same time, the Chinese government has frequently made headlines in recent years for its continuing development of a “social credit system,” which collects citizens’ data and makes extensive use of it. In her video series Taking Control of Your Personal Data, Dr. Jennifer Golbeck, Professor in the College of Information Studies and Director of the Social Intelligence Lab at the University of Maryland, College Park, explained how it works.
Eventually, a Different Kind of Credit Score
China doesn’t have a credit score system like the United States for a number of reasons.
“Many people don’t have credit cards, and loan debt is tracked and enforced differently; that makes a U.S.-like credit scoring system a poor fit,” Dr. Golbeck said. “China knew that. They needed a way to assess the trustworthiness of citizens, especially when it came to loans, but potentially for other things. Their solution was the development of the social credit score.”
With C It started as a way of measuring their ability to repay loans, but it evolved to measure their responsibility—”or conformity, depending on who you ask,” she said—in other areas.
“Bankruptcy doesn’t exist in China the same way it does in the United States, but the penalty for not repaying debts was relatively minor,” Dr. Golbeck said. “As a result, a lot of people simply walked away from money that they owed. With the introduction of the social credit score, people who did not repay their debts and who were taken to court could be given a low score.”
Having a very low score results in being put on the nation’s blacklist. The consequences of being on the blacklist have been called downright dystopian.
“People who are on the blacklist […] are not allowed to board most types of fast transportation,” Dr. Golbeck said. “They can’t buy flights on airplanes and can’t take fast trains. Sometimes, when you call someone who is on the blacklist, before they answer, the first sound that you hear is like a siren from a police car, followed by a recorded message that tells you the person you’re calling is not trustworthy and you should use care in doing business with them.”
Large digital billboards in some cities cycle through photographs of people on the blacklist, broadcasting their name and identification number to warn people about interacting with them. They’re also sometimes shown before movies in movie theaters. According to Dr. Golbeck, people on the blacklist can legally be offered fewer television channels on their cable subscriptions or may have their Internet service slowed down.
While the blacklist initially consisted of those who hadn’t repaid debts, the in-development social credit system also lowers the scores of those who don’t stop for pedestrians at crosswalks or pick up after their dogs’ leavings in the street. It also flags people buying things that are legal but that the CCP doesn’t want them buying, or people who spend more time playing video games than the government would prefer.
How do they know?
“There are neighborhood watchers who keep track of people’s behavior and report it to a central system,” Dr. Golbeck said. “Also, China has broadly deployed surveillance systems, with cameras in many public places. They also have a very advanced facial recognition system that’s able to identify people as they move through public places.”
This collection and use of private data makes the country’s complaints about tech giants and data handling all the more surprising.
The China tech crackdown continues
The Chinese government’s crackdown on its domestic technology industry continues, with Tencent under fresh pressure despite the company’s efforts to follow changing regulatory expectations.
News broke over the weekend that Beijing filed a civil suit against Tencent “over claims its messaging-app WeChat’s Youth Mode does not comply with laws protecting minors,” per the BBC. And NetEase, a major Chinese technology company, will delay the IPO of its music arm in Hong Kong. Why? Uncertain regulations, per Reuters.
The latest spate of bad news for China’s technology industry follows a raft of regulatory changes and actions by the nation’s government that have deleted an enormous quantity of equity value. After a period of relatively light-touch regulatory oversight, domestic Chinese technology companies have found themselves on defense after the Chinese Communist Party (CCP) came after their market power in antitrust terms — and some of their business operations from other perspectives. Sectors hit the hardest include fintech and edtech.
Gaming is also in the CCP crosshairs.
After state media criticized the gaming industry as providing the digital equivalent of drugs to the nation’s youth last week, shares of companies like Tencent and NetEase fell. Tencent owns Riot Games, makers of the popular League of Legends title. NetEase generated $2.3 billion in gaming revenue out of total revenues of $3.1 billion in its most recent quarter.
NetEase stock traded around $110 per share in late July. It’s now worth around $90 per share after expectations shifted in light of the gaming news, indicating that investors are concerned about its future performance. Tencent’s Hong Kong-listed stock has also fallen, from HK$775.50 to HK$461.60 this morning.
CS NAMRATA SINGH
COMPANY SECRETARY OF ICET LTD.