Ecovis Global > How does the Chinese Social Credit System affect Companies doing Business in China?
How does the Chinese Social Credit System affect Companies doing Business in China?
8. May 2020
Heidelberg, Munich, Germany, May 8, 2020: The Chinese Government has been developing an rating system since 2014. It rates not only individual citizens, but also companies. With this system, China wants to make sure that market participants behave in accordance with the law. Ecovis China expert and consultant Manuela Reintgen in Heidelberg, Germany, knows the evaluation criteria and protects companies with business in China from disadvantages.
Even a small inaccuracy, for example when filing a tax return, can lead to a deduction of points. This is now the reality for many companies doing business in China or have a branch in the country itself. “The consequences are drastic, depending on the severity of the offence”, says Manuela Reintgen. The management consultant is specialized in China has lived in China for eight years. She speaks fluent Chinese. She has experienced the development of the evaluation system herself.
What consequences can a misdemeanour have?
The Chinese authorities restrict the business activities of a company. They frequently carry out inspections, deny permits, tax benefits or subsidies. “It is particularly painful when executives are publicly compromised or their freedom to travel is restricted,” reports Reintgen. “It is precisely the link between people and companies that is very painful for the individual, but on the other hand it is intended to ensure that the rules are obeyed.”
Huge market entry hurdles
Many companies see the social credit system as an obstacle to doing business in China. “We know how costly it is to comply with all laws correctly,” says Reintgen. For many companies, she is researching how the individual company is positioned. “And we can also check the business partners. Because their poor rating in turn has a negative impact on their own company.” The Chinese Ecovis partners in Shanghai also make sure that a company correctly complies with all regulations regarding accounting, taxes and payroll accounting.
Details of the Chinese social credit system in the video:
Ecovis consultant Manuela Reintgen explains in the video how the rating system affects companies with business in China and what they should do now.