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China’s Big Brother Is Watching You Do Business

Posted by hkarner - 24. Mai 2017

Date: 24-05-2017
Source: The Wall Street Journal

Beijing aims to harness big data to monitor and rate companies; ‘IT-backed authoritarianism’

China is harnessing big data to keep tabs on companies as part of a ‘social-credit’ system to be rolled out in 2020.

SHANGHAI—The all-seeing eyes of the Chinese state are focusing on businesses.

China is already rolling out an IT-enabled rating system to govern the behavior of individuals. Less attention is being paid to its other application: Big Brother is also harnessing big data to create the world’s most extensive system of corporate surveillance and control.

Think of it as the ultimate tool of Chinese state capitalism.The Mercator Institute for China Studies, a German think tank, calls it “IT-backed authoritarianism.”

Foreign companies had better get used to the attention, the institute warns in a new report. They are very much part of the Social Credit System intended to produce conformity not just with laws and regulations covering such things as factory emissions and worker safety but the state’s long-range industrial plans.

The backbone of the system will be up and running by 2020. As it becomes more sophisticated, it will generate corporate scorecards from masses of data extracted from cameras, sensors and e-commerce trading platforms. Low scorers might expect higher taxes, or more expensive loans; high scorers lucrative investment opportunities.

The world’s liberal trading order has never faced a challenge quite like it, and foreign investors are just now trying to fathom its implications. “Data ownership helps autocratic systems,” says Jörg Wuttke, the outgoing president of the European Chamber of Commerce in China.

The Trump administration is fixated on traditional threats to trade. Wilbur Ross, the commerce secretary, recently hailed a new U.S.-China trade agreement that opens the Chinese market to U.S. beef, liquefied natural gas and selected financial institutions as “a herculean accomplishment.”

That may be true, though it misses the wider point: The real challenge to foreign businesses in China these days is occurring behind its borders.

Despite China’s pledges to give markets a greater role, President Xi Jinping is leading a retrograde drift toward industrial command-and-control.

Invoking security concerns, authorities are squeezing foreign technology suppliers out of critical infrastructure projects, such as banking networks. A “Made in China 2025” industrial blueprint aims to replace foreign technologies with Chinese ones in areas from artificial intelligence to robotics and semiconductors. A firewall shuts out U.S. media giants.

If Deng Xiaoping’s economic “open door” is indeed clanging shut, behind it lies an increasingly hostile environment for multinationals. They are now on notice to actively support Mr. Xi’s grand statist project to turn China into a “manufacturing superpower.”

The social-credit system of rewards and punishments is the enforcement mechanism.

To view it solely as a kind of Orwellian dystopia, though, would be a mistake. Frauds and fakes plague the Chinese marketplace; better data will boost consumer trust.

Likewise, stronger data collection will help enforce environmental regulation; monitors lurking in chimneys will spot excessive factory emitters, while smart meters will spy on surges in energy usage beyond permitted levels.

Dash cams aboard truck fleets will identify errant drivers. Digital feeds from e-commerce sites will expose glitches in customer service and payment irregularities.

Big data will capture infractions in real time, allowing instant downgrading of rolling credit scores. Yet this self-enforcing regulatory system is at the same time pernicious.

Eventually, predicts Mercator, Chinese and foreign companies watching their credit scores are more likely to fall in line behind state planning objectives, whether or not they make commercial sense. Already, car makers are under pressure to pour investments into clean-energy vehicles under a production-quota arrangement.

The Mercator report, which draws on publicly available Chinese documents, predicts that the social-credit system “could become a powerful, big-data-enabled tool kit for monitoring, rating and steering the behavior of participants into a politically desired direction.”

Of course, the system could end up wrecking the economy. Excessive regulation risks upsetting the delicate balance between government control and commercial disruption that allows innovation to flourish.

Then there are IP concerns. Chinese authorities, openly committed to nurturing state-owned national champions, will wind up with troves of highly sensitive commercial data from foreign competitors. A data breach could be calamitous.

And how will the ratings be compiled? The suspicion of antiforeign bias will be hard to dispel. The National Development and Reform Commission, the main body overseeing the project, declined to comment.

It’s unclear what the West can offer as a defense. The best hope of dealing with state capitalism is the Trans-Pacific Partnership, which the Trump administration has abandoned. The giant free-trade deal is intended to set new regulatory benchmarks in areas like the digital economy and the role of state-owned enterprises—domains not properly covered by the World Trade Organization. (The remaining 11 countries in the pact are struggling to keep TPP alive.)

As it is, foreign players in the world’s fastest-growing technology and consumer markets will shortly find themselves looking over their shoulders at the whizzing numbers on their scorecards. When Big Brother is the regulator, their fortunes will be at the mercy of invisible eyes and mysterious algorithms.

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