Will China’s social credit system arrive soon for luxury brands?

China’s “social credit” system, which was first announced in 2014 and effectively ‘assess’ all individuals in China by next year, has been widely publicized around the world since its inception, sparking a mixture of shock (by its dystopian nature) and awe (by the way it is). could work with a billion people).

While Western observers tend to view the social credit system as “either Orwellian or a live episode of Black Mirror”, like Wired recently put it, Chinese academics tend to describe it “less as a dynamic number and more as an agglomeration of ‘blacklists’ that a person can fall into. »But despite what we feel the social credit system and its focus on Chinese citizens, until now, foreign brands were mostly beyond its reach. Instead, brands have come under more scrutiny in recent years from retailers. crowds in line who do not hesitate to unearth collections, publications on social networks or comments from leaders that “hurt the feelings of the Chinese people.” This force of public apology brands that want to stay on the safe side of Beijing and keep their stores in mainland China operating.

Now, there are signs that these public condemnations will eventually put brands squarely in the crosshairs of China’s social credit system. Last month a report by consultancy Sinolytics for the European Union Chamber of Commerce in China reported that “corporate” social credit is coming for foreign brands, and a bad credit rating could very well mean life or death in this market.

About the report, Wired said: “Companies will face around 30 different assessments, ranked according to their performance in areas such as environmental protection, taxation and quality controls, which in total will be drawn from compliance records. based on approximately 300 requirements. These ratings will cover areas such as taxation, customs authentication, environmental protection, product quality, occupational safety, e-commerce and cybersecurity. While the report states that “the requirements and scoring mechanisms are, for the most part, clearly defined and can be assessed by detailed analysis”, the standard of what constitutes “detailed analysis” is quite high. The Sinolytics database of official documents indicates that one report “includes several hundred documents published at the national level alone, and nearly 1,500 including all relevant documents at the provincial and local levels.”

Two questions remain about this plan: whether it will actually be implemented and what kind of effect it will have on business in China, especially in the luxury sector. Since becoming the leader of China in 2012, Xi Jinping has made the fight against corruption a key part of his agenda, starting with a major effort early in his term. Xi’s first anti-corruption campaigns had a chilling effect on luxury watchmakers, winemakers and brands with flashy logos, causing a period in which brands moderated their expansion efforts, pushed items with logos smaller or logo-less in the Chinese market and have stepped up efforts to attract overseas Chinese tourists shop abroad for themselves (rather than buying in China for gift purposes).

Now, after years of rebuilding their fortunes in China with new stores and hesitant signs of an increase in domestic purchases, luxury brands could experience another cold wave if the social credit system begins to fail. apply to them in a meaningful way. Taxes and controlled employment practices will certainly increase at first, which means brands will have to be legally prudent so they don’t get branded very publicly – something Beijing is happy to do on a regular basis.

As the Wired piece said, “[The] Corporate SCS… enables the government to enforce compliance, not only on obvious measures like tax controls, pollution and quality, but also to ensure that companies stay on the policy line. This allows the government to give the impression of creating a system open to competition and foreign investment, without giving up the tools it uses to impose ideological control in the country. Observers were quick to point out that the potential implementation of corporate social credit ratings is just a digital evolution of what brands have already adapted to in China. Most luxury brands know they are always the first target if there is a crackdown on “decadence” or if anti-corruption measures take effect, and they are already acting cautiously in mainland China.

Brands remain largely out of the political fray (although they are sometimes trained in it) to continue their operations and expansion efforts. But extending the social credit program to the corporate realm adds another layer of control on the pretext that it will level the playing field for international brands since local Chinese companies will be under the same digital microscope. In practical terms, this could be a bad thing for luxury brands as they will be even more open to being called (or blacklisted) for “violations” of ever-changing rules. The open questions then become innumerable: could a luxury brand see its social credit rating drop in China because of a campaign in Europe that Beijing do not like ? Could Beijing penalize a Western brand for using a blacklisted celebrity brand ambassador? What influence could this ultimately give the Chinese government on the future of a brand in the Chinese market?

Like many high-profile efforts in China, the corporate social credit program will most likely end up being implemented more subtly or on a smaller scale, as an “upgrade” from the current level of corporate control. foreign brands. Still, brands should be wary of the voice Beijing would prefer to have in their economic and marketing strategies going forward. If recent events in Hong Kong are one indication, foreign brands could enter a new phase in mainland China that makes the anti-corruption campaigns of the previous decade tame.

About Andrew Miller

Check Also

Verizon to buy prepaid phone vendor Tracfone for up to $6.9 billion

Estimated reading time: 1-2 minutes This news archive is available for your personal, non-commercial use …