20 FAQ's: Corporate Social Credit System in China

Article by CNBW member
CMS, China - Law, Tax, Future

What is the regulatory purpose of China's Corporate Social Credit System?
The regulatory purpose of CSCS ("CSCS") is to incentivize those companies, which are compliant with Chinese laws and to punish those, which are not compliant. The Chinese regulator has developed various tools for punishing and awarding certain conducts of companies doing business in China. Most significant for companies are the CSCS ratings. CSCS provides a number of specific ratings in specific areas (e.g. tax, customs and environmental). The ratings results, which are often based on scores, provide regulatory and business related positive and negative impacts on the  individual company.

High CSCS ratings can trigger advantages for the company, such as the accelerated process for approvals from authorities, easier access to get loans from banks and easier access to acquire landuse rights from the Chinese government. Low CSCS ratings can trigger disadvantages on the company, such as the restricted issuance of governmental approvals and increased inspection rates by authorities on the company's operation. Further, companies may be added under certain requirements on the positive redlist, close-watch list or on the negative blacklist in specific areas by different authorities.

In addition to the CSCS ratings, companies may be subject to CSCS disciplinary actions. CSCS disciplinary actions shall be imposed on those companies, which have been involved in certain misconducts as compiled in a specific list by the Chinese regulator. Disciplinary actions include for example restrictions on participation in bidding and government procurement activities and the ban on entering certain markets and industry sectors.

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Contact:
CMS, China
Philipp Senff
Partner, Head of Compliance
philipp.senff@cmslegal.cn

Lei Shi
Associate
lei.shi@cmslegal.cn