Marketing Professor Decodes China’s New Social-Credit System

As one of the first professors studying the system, Zahy Ramadan can help companies manage it.

Zahy Ramadan, LAU alumnus and assistant professor of Marketing at the Adnan Kassar School of Business, has his eye on a trend taking over the Far East. “I worked in China for around a year and a half before moving to the academic world,” he said, “and I was fascinated by the country’s exponential use of locally driven online platforms given the restrictions that were imposed on the usage of foreign social platforms such as Facebook, YouTube and Twitter.”

Ramadan is referring to China’s evolving “social-credit system,” the subject of his recent paper published in the Marketing Intelligence & Planning Journal. The professor is among the first to write academically about the phenomenon from a marketing perspective.

Essentially, China is establishing a type of rating system for citizens in which the government collects data gathered from people’s online trails. China’s economy has evolved rapidly away from the use of cash, and a huge number of its 1.4 billion people rely exclusively on smartphones to make and receive payments, and rent and buy products and services. This means that the government, which closely oversees private enterprises, can track how each smartphone user makes purchases and payments, and if they have ever been reported for corruption, fired, evicted, and so on. This is translated into a score that reflects a person’s social-credit value.

While this form of gamification has raised eyebrows in China and abroad, it is going ahead in the country. “Given that China is about to finalize the development of its social-credit system, I became interested in looking into the possible repercussions in the short and long term, and through it, propose some early strategies to concerned companies,” said Ramadan.

China has been trying to establish such a system since the late 1940s, but it only became widely feasible with the advent of smartphones and social media. One of the reasons the system is so controversial is that it is expected to measure trust and subsequently a person’s overall “goodness.” Critics fear the government could use people’s scores to coerce them into certain actions or punish them for what it deems bad social behavior. There is also, of course, the issue of privacy. But because guanxi, or social standing, is such a major factor in daily life in China, the government hopes the social-credit system will encourage citizens to work at boosting their scores and thus benefit society.

Ramadan’s paper touches on potential dilemmas brands will face within this new business landscape. Because the social-credit system is still being developed, the main aim of his work is to reduce uncertainty so that companies can start devising strategies related to consumer behavior, market share and sustainability in the country.

“The highlighted risks pertain mainly to brands operating in this key market,” Ramadan said. “They will have to pay close attention during the system’s implementation phases, and be very cautious how they react so that they don’t lose significant market share.”

As one of the first academics studying the social-credit system, Ramadan’s work can inform corporate and individual actions within it, and help other societies in their introduction to the system if it catches on outside of China.