 Welcome, and Aloha. My name is Mark Shklav. I am the host of Think Tech Hawaii's Law Across the Sea program. Today we are going across the sea to China once again. We're going to visit this dynamic and enigmatic country. The title of our program is China's Social Credit System. Being trustworthy is glorious. Being untrustworthy is disgraceful. And my guest is Lawrence Foster. China has begun to rank its citizens and businesses by what has been called a social credit system. Using the motto, being trustworthy is glorious. Being untrustworthy is disgraceful. Larry Foster, former dean of William S. Richardson's School of Law at UH, is a China expert who will tell us what it all means. Welcome, Larry. Good to see you. And I understand that you're just back from a visit to China. And, I mean, I know you are a fluent Mandarin speaker. You've spent a lot of time in China. And most recently, as I said, you just flew back from Shanghai over the weekend. And before we get into China's social credit system, tell us a little bit about what you were doing in China, in Shanghai especially. Okay. This comes out of the category of advertising. I do legal training programs in China these days. I was there doing two legal training, day-long legal training programs. The first one is on legal writing and analysis. And the second one is fundamentals of contract drafting. And they're day-long programs. I do them for young Chinese lawyers, if you will. And then I gave a couple of one-hour talks on a similar topic at two different law firms. Oh, Chinese lawyers want to learn about American law, is what I'm hearing, or is that correct? Or is it just... No. Incorrect. No. They want to learn about how to write in English. Okay. Because Shanghai in particular is an international commercial center. And for better or worse, English is the language of international business. So they're writing memos to Pakistan, France, Germany, US, and they're all in English. They're reviewing contracts from all around the world, and they're all in English. The programs I do are not about American law, but rather about what does good legal writing look like, and again, sort of fundamentals of contract drafting. And how to get along in the legal world. Yes. And also sort of how to... The audience may not know this, but you and I taught a course on contract drafting at UH a couple of times. And one thing we discovered, a lot of really famous contracts in the US are very poorly written. So the idea is to give them a sense of what a bad contract looks like, then also teach them how to recognize a bad contract and how to clean up the language. That's interesting. Now, let's kind of focus on our topic. What is China's social credit system? What is that existing now? Where is it going? Sure. Well, let me begin by saying it's not a social credit system, if you will. I'm not sure where that the word social came about, social credit. And that's a term I've heard quite a bit. That's the term that everybody in the West uses. Okay. It turns out that the Chinese word and the translation of the Chinese word is trustworthiness. Are you trustworthy? Okay. It's kind of like going to the Better Business Bureau and saying, hey, is this company a good company? Is it trustworthy? Are there any black marks in the Better Business Bureau record there? So what it is, is a scoring system initially rolled out... Well, actually, the plan is to make it a national system. But they've been experimenting as the Chinese are want to do for programs like this. They've been experimenting around the country with it for some years now. And so variety, probably three-fourths of the provinces now have their own... I'll use the term social credit system. They have their own social credit system. They plan to roll it out nationwide this coming year, 2020. I think they got a long way to go before they get there. But the idea is that... Well, originally it was... The original conception of it, if you go back to some of the documents from 2003 when they first started talking about it, the idea was to promote trustworthiness in business transactions. And that was primarily as between individuals or individuals and companies would have you. So the first wave of activity that came out was for individuals. The second wave, and it's in the sort of implementation phase right now, is corporate social credit, if you will. And then the third wave that is still kind of vague and ambiguous is government officials. China has a problem and has a lot of problems. Everybody has a lot of problems. China has a problem that when Beijing, the central government comes out with a new law and regulation 2000 miles away and distance southeast or southwest China or wherever, far, far away from Beijing, they say, I don't care. And they ignore it. Really? Yes. Oh my gosh. Yes, yes. A very common phenomenon even in the United States. I'll tell you a story about that, but that takes too much time and it's not China. But the farther you are away from Beijing, the less you do what they tell you to do. They have a saying in Chinese, Beijing is a long, long ways away. Interesting. Interesting. I never knew that. So we've got these three groups. Individuals, businesses and government. Don't ask me about government because there's no real details on it. Business is 33 million Chinese companies have been reviewed and given a score. And millions and millions of individuals at the local level have been given a score by the local government. So for the individuals, the big problem they have to overcome and they know it is when it rolls out nationwide, they need to standardize the system. So on the individual level, every province has its own numerical scoring system. Everyone has different things on their list for good behavior and bad behavior. Everyone has different points they deduct from your score for this and that. So it's just, there's no standardization. Okay, so it was originally a nationwide idea, I guess, for Beijing. Oh, absolutely. Absolutely. And they sent it out to the provinces. Yeah. And then the provinces have come up individually all over the place with their own system. Yes. And are they trying to combine it? It will be a national system. The A problem, as they see it, is that a lot of this information about individuals, work with just individuals, a lot of information about individuals is siloed. It's siloed within a province. It's siloed within an agency in the province. Under the new system, all this information gets fed up up the line to a national database. Okay. And this is all going to be based on technology of some sort, I guess. Is that right? It's not handwritten stuff. It's computerized or inputted. No, it's not. Okay. So until very recently, every Chinese citizen had a dossier kept on them in their hometown by the government officials. It's a paper file. I had a friend who recently is in America now. She went to her hometown and she'd gotten friendly with the government. So she asked if she could have her dossier. And they gave it to her. Oh. And it was full of all kinds of... No, she's a good person, so she never got in trouble with anybody. Comments, I guess. Comments, notations, top student in this class, whatever. Just a dossier on everybody, but hard copy. So there's always been a hard copy dossier on people. So the idea of this nationwide database, it'll be a digital, searchable, open to the public database. So you can... If I want to enter into a contract with Mark Schlauve, rather than shaking hands with him and signing a piece of paper, well, I'll do that also. But I'll do a little due diligence. I'll check out your social credits score and see if you're a trustworthy person. Okay. Now, I want to ask some follow-up questions because a lot of the stuff you said. I mean, you said that this was for business reasons. Yes. Why? What do we need to... I mean, what did they need to protect? What was the issue or what issues are the problems that they felt needed to be monitored or to fix that this system came into existence? Well, that comes to my favorite phrase that came out in 2014. To be trustworthy is glorious and to be untrustworthy is disgraceful. China has been described in the West and even within China, but this is an English phrasing of it, a low trust society. There's not a lot of trust out there. Is that within society or outside? Within the society, within China. And that's there for a number of reasons, but the one I think is maybe the most important one is private business in China is a new phenomenon. It really didn't start until the early 1980s. So, they haven't really built up a, they call it a social consciousness of being trustworthy. So, the government looks around and they see these problems that they've been trying to combat, the government trying to combat, intellectual property theft within Chinese companies, fraud, misrepresentation, the big powdered milk scandal some years back. And they keep trying to sort of come up with a way to make people more trustworthy and to impart to them the importance of being trustworthy. So, it's really an economic background in a way. Primarily economic. Rather than social, but it's kind of combined. Yes, I think the original concept of it back in 2003 was sort of an economic one, build up trust. Over the years, and this is a typical way, I think I mentioned before, for China to roll out a new program. When they started rolling out leasehold properties, you can actually hold a leasehold interest in land some years back, 30 years ago. They experimented in various places around China before they rolled it out nationwide. This is exactly what they're doing here. So, they're experimented in a number of places. So, in 2003, sort of the first real vague concept paper comes out and it talks about business, but it also talks about just sort of social relationships, if you will. Fast forward, and in 2014, they did a big study. How's it working? How's the social credit system coming along? And a big surprise, they said, yeah, we've got a lot of big issues. How trustworthy is the data, for example? Total lack of standardization. A number of things to work on. There was a big meeting in August of this year, I think up in Beijing, and they are drafting a social credit law. And we're expecting the draft to come out sometime in 2020. So, you're going to ask me a lot of questions, and I'm going to say, wait until the law comes out to serve some of us. Let me ask you a question about something you mentioned that came up, I think, in 2004, that motto being trustworthy. Where did that come up? Where did that start? The first time I saw that. Being trustworthy is glorious. Being non-trustworthy is disgraceful. So, the first document I saw in the social credit context was the 2014 review of How's it Working. I think the earliest time I remember it cropping up was back in the late 1970s, early 80s. The leader of China then, the fellow that modernized, that brought capitalism to China, Deng Xiaoping, came up with a slogan, being rich is glorious. Which meant, it's okay to be a millionaire. Because, seriously, under pure communism, I'm not a political scientist, Marxism, communism, we don't like rich people. But Deng Xiaoping said to be rich is glorious. We gave it a break. Within the society, it's okay to be successful. It's okay to be financially successful in a private economy. Because from 49 to 78, there was no private economy. Now, we're going to take a break right now. In a minute, we'll be right back and figure out where we're going with this social credit system in China. Thank you very much, and we'll be right back. The Hawaii Energy. The Hawaii Energy Policy Forum. Hawaiian Electric Company. Integrated Security Technologies. Galen Ho of BAE Systems. Kamehameha Schools. MW Group Limited. The Schindler Family Foundation. The Sydney Stern Memorial Trust. Volo Foundation. Volo J. Sugimura. Thanks so much to you all. Welcome back. I'm Mark Shklov, host of Law Across the Sea. And I am talking with Larry Foster today about China's social credit system. And we have been kind of discussing basically what it is, and it's supposed to be enacted, I guess, this 2020. Okay, Larry. What are the, you know, what are the benefits and detriments that you can receive from being in this system? What do you have to do to be good? What do you have to do to be bad? I don't know if those are the right words, or glorious and trustworthy. Or blacklist or redlist. Please explain. Yeah. So this is one of the issues that was raised in the 2014 report. That there's a lot of ways your score can be lowered. A few ways it can be raised. But even if you have a high social score, let's take the individual level. What's the benefit of having a high social credit score? Probably the primary benefit is not having a low social credit score. So what's the downside of having a low social credit score? Yeah, okay. If you want to go online and book an air ticket online or today, book an air ticket or a train ticket, you will be denied the ability to do that. Because you've been blacklisted. If you have a low score. If you have a low social credit score. On the business side, it's a little clear but still fuzzy what the benefits are. Come back to the 2014 report. It's really not clear what the benefits are. We need more, we need more carrots to encourage people to, other than saying, well, you don't get in trouble for having a high credit score. They see there's a need to add more carrots. So on the business side, for example, businesses are reviewed all the time by Chinese government. They're regular reviewing of your business thing. And in theory, then, if you have a high corporate social credit score, those reviews come less frequently. If you have a low corporate score, reviews come more frequently. The good news is if you're a lawyer or a consultant, we have laws in the United States we call full employment laws for lawyers. This has created a whole area for lawyers and consultants of, we'll make it on the corporate side, comply, comply, comply. A lot of people don't comply with all the rules and regulations in China, Chinese businesses and Western businesses. Now, if you don't comply, you don't just get a mean letter, you get put down lower on the list. And if you're lower on the list, again, you get reviewed more often. If you want to get business loans, you might get denied a business loan. There's a lot of... Again, they need to come up with more carrots because I think they've got plenty of sticks already. But you say it's kind of opened up a new area of business, also for lawyers and perhaps facilitators and maybe even a new, trustworthy consultant or something like that. Absolutely. Let me come back to things... It's all at the local level and there's some really kind of fun things at the local level. In Shanghai, for example, a few years ago, they passed a local regulation that you must sort your garbage. You've got to separate your recyclables from your garbage. And not everybody does that. But guess what? Your social credit score gets lowered because you didn't do that. But I think the bigger national emphasis is going to be on things like fraud and corruption, non-compliance. But to do business. Now, I want to take a look at a couple photos we got. First one, first image that we have. Explain what this is. This is in a town, 20 minutes by a high-speed train from Shanghai. It's called Sudro. This is their local social credit bureau. The provincial one. It's a municipal one. Wow, it's actually a brick-and-mortar place. Absolutely. Because the national system has not been launched yet. They're going through a number of contests for app developers. They develop apps for the smartphones. So when it goes digital nationally, you don't have to go to the bureau anymore to find out about Mark's Cloth. You just type in Mark's Cloth and it'll spit out what your score is and what you've done good or bad. It's open to the public. It'll be a public database. This is an image people can go to a brick-and-mortar place and actually ask questions about your score and that type of thing. Let's take a look at the next image. This is the counter inside the bureau. I'm not sure if this comes from Sudro or not, but basically it's the social credit score searching for your social credit score. It'll be a rough translation of it. We actually have a new agency set up on this to deal with it. Will this become part of the national system? Wait until 2020. Wait until 2020. I shouldn't know that. What is the red list again? The red list is if you've been good. What's the carrots? Sometimes you can get discounts on a mortgage loan. You can get preferential treatment if you want to get a passport to go travel. Maybe not the front of the line, but you get easier to process that request. Let's say I'm on the black list. Can I appeal that or can I go anywhere to ask? Come on, please. This is wrong. That's a mistake or something like that. Wait until 2020. That's one of the criticisms. It's sort of an abstract criticism. Are you able to adjust your social credit score? For example, I was talking to somebody in Shanghai and they knew about U.S. credit scores. They said if you have a black mark on your U.S. credit score, you can contact the agency, find out what the issue is, and if it is something like, well, you never paid off the loan, you can take in your loan documents or email them in and show I paid off the loan and they'll make the adjustment. Arguably that will be part of the new system. By the way, it could also be a new place of business for law firms, too. If China follows that course, because lawyers in the United States sometimes find a cause of action or something improper that has been said on your credit score, if you will. Now, I had a couple kind of intertwined... So we don't know about how the government will work now. I mean, if you're a high-level person, are you going to get on a list or not? You don't know. Wait until 2020. How about if you're outside the country? How about if you're a company in America that has a low credit rating? Are they going to care about that? Or how about Taiwan? Wait until 2020, but arguably it'll just be for a Chinese company, not a foreign company. Although on the corporate credit side, if you have contracts with companies that have low ratings, guess what happens to your rating? It goes down. And that also includes U.S. companies, for example? I'm clear. Okay, but that could be... It seems to me that would be a logical connection. In other words, you should check out who you're dealing with everywhere. Absolutely. Because if you deal with someone who is a low credit rating in the United States and you bring them to China, it could hurt the business or the economy. So part of what they're trying to do, and the parallel is back to when they were developing the modern legal system, they spent a lot of time, and they still are a lot of time and energy teaching the people to give them a legal social consciousness to know about their legal rights and penalties under the law. We educate the people that we are now a country of laws. There's discussion about that. We need to teach you that there's a legal system and people should... If you have a contract dispute, you should go to court and how courts work and how to file a lawsuit and all these things. They spent a lot of time and energy building up a legal consciousness. The 2014 report says, we've got a long ways to go on building a trust consciousness in Chinese people. The way people review you is being not trustworthy or trustworthy is important and the way you view others is important. So we've got this new thing they need to educate the people. It has a while to go and it's being developed as we talk. Now I've heard some criticism of this social system using the word social. We have anything comparable in the United States or I mean, especially this time of year, anything that you can think of would kind of be the similar. You're rushing into slides three and four. But before you get there, let me talk about the broad criticism of the program. The first one comes from a group in the United States called the ACLU and they're very concerned they issued an alert a couple years ago that the social credit thing is coming out and it's going to oppress the Chinese people and China's headed to a dystopian future. Everything you do is going to be wind up on this list. They're very much against it. The government view I already talked about they're focused initially primarily on business. I talked to a number of Chinese about it and I'll call it the cynical pragmatist and that's summed up by who cares. There's nothing I can do about it. The Chinese government on things like if they do not do a survey, what do you think guys? Do you think this is a good deal? They're not going to do that. It's coming regardless of what you think. Okay, so because it's the time of year, let's close with the last slide about what we have here in America. So my working theory is all this started with Jean Autry in 1947. He came up with a song about Santa Claus and became very popular and it's very popular today and highlighted in red. Chinese love the color red. He's making a list, I won't sing it. He's making a list, checking it twice. He's going to find out who's naughty or nice and based on your behavior, your social behavior, you will receive a lump of coal or a train as a toy. Larry, thank you so much for explaining that to us and look forward to finding out what happens in 2020. Maybe we'll have you back to tell us the answers. Thank you very much. Aloha everybody. We'll see you probably in the new year for another Law Across the Sea program. Thank you very much.