The China Railway Construction Corp (CRCC) recently completed a coal carrying railroad line from inner Mongolia to the Jiangxi Province. For scale this railroad is about the same length as NYC to Walt Disney World in Orlando, FL and cost about $28 billion. The CRCC and Chinese state media lauded the project as an exemplar of “safe production”, claiming that there were no deaths or injuries during the four year span it took to build the railroad. However this was far from the truth.
Inside sources tipped off accidents to local reporters and eventually a state run China Railway unit admitted to the death of 3 workers which occurred in 2017. Apparently a panel the workers were standing on collapsed into the Ganjiang River and all 3 of the workers did not survive. The firm was blacklisted by the Chinese government for a year, subjugating the company to more inspections, limits on bidding for public projects, and restrictions on issuing bonds and shares.
The incident was fed into China’s corporate social-credit system, a system which punishes every Chinese firm over acts as harmless as tweets, maps, or T shirts which the government deems harmful to the State. The social credit system is extremely powerful, leading firms to drastic measures to stay off the backs of the Chinese State. The social-credit system can benefit firms which exhibit good performance; leading to lower taxes, fewer inspections, more favorable loan terms, and more opportunities to public bids. The Chinese government claims that the social-credit system is in place to scare companies into abiding by the law, however it’s more likely a scare tactic to force companies into obeying the party line.
Foreign companies in China worry about what China will do with their social-credit systems. Will they weaponize it? Trapping foreign companies in the crossfire of the US-China trader war, or could potentially be targeted so that domestic Chinese corporations could gain unfair advantages. In some cases there’s a lack of information on how blacklists will be implemented, leading to uncertainty for many businesses. This arbitration can lead to a lot of leeway for local interpretation which could discriminate against foreign companies. However the greatest risk foreign corporations face is losing access to the worlds biggest market from a political misstep.
Some foreign corporations are investing into staying ahead of the system. Examples include Trivium China charging $2,500 an hour explaining social credit to clients and up to $50,000 for an audit. Sinolytics is another consulting company which is currently working with European and US multinationals in automobiles, pharmaceuticals, chemicals, manufacturing, and logistics. At this point the social-credit system is expanding, and there is a large amount of uncertainty about just how far the Chinese State will take it.
Source: https://www.bloomberg.com/news/articles/2019-12-08/the-chinese-blacklist-that-companies-pay-2-500-an-hour-to-avoid