In June 2014, the State Council of China announced a five-year plan to establish a comprehensive social credit system in China. Since then, different government departments have announced new rules and launched a variety of platforms to implement the plan. As we are approaching the end of the five-year plan period, the Chinese government has recently issued a series of rules to streamline and enhance the outcomes achieved to date. These new rules have been drawing a lot of attention. In this e-bulletin, we summarise some of the key rules and platforms under the social credit system and set out our observations on the implications for M&A transactions.


The social credit system is not contained in a single piece of legislation, rather it is based on a number of legislative sources which can be broadly categorised into the following:

  • Core structural sources

This category includes high-level governmental plans (such as the five-year plan) and specific plans and guidance for the specific regimes. For example, on 16 July 2019, the State Council issued guidance on accelerating the building of the social credit system and building a credit-based monitoring system for various social credit regimes. In addition, on 1 September 2019, the National Development and Reform Commission (NDRC) published a notice to enable the public credit evaluation results of relevant market players to be published on the National Credit Information Sharing Platform (Credit China)(we will discuss “Credit China” in more details in the section “Key Platforms”).

  • Blacklists and redlists

The “blacklist & redlist” mechanism is widely used across different sectors to build the social credit system. Blacklist is for entities with adverse credit information and redlist is for entities with good credit information. This category includes both sector and non-sector focused regulations on the blacklist mechanism. It also includes a large number of MOUs between regulators in various sectors agreeing to joint awards and joint disciplinary action by regulators. We discuss the blacklist regime in more details below.

  • Regulations aimed at specific sectors

Industry-specific regulators have also issued their own guidance and rules for the social credit systems in their industries. For example, in 2015 the State Food and Drug Administration issued guidance on developing the food and drug safety credit system.

  • Local rules

Local governments have also issued their own implementing rules to establish local social credit systems. 


The State Council’s July 2019 guidance mentions many credit related mechanisms and divides them into 3 categories, namely (i) pre-process mechanisms that include investor’s training, etc.; (ii) in-process mechanisms that include taking credit information records and conducting evaluations on the market players; and (iii) post-process mechanisms that include awards or disciplinary actions and credit information restoration. In this e-bulletin, we highlight three key mechanisms from the in-process and post-process mechanisms.

  • Credit information records

The State Council’s guidance urges all government departments to collect and record a person’s/an enterprise’s credit information (in particular adverse credit information as part of their daily public service work in granting permits, processing registrations and supervision). The credit records should be combined and publicised on social credit publication platforms such as Credit China managed by NDRC or China’s National Enterprise Credit Information Publicity System (NECIPS) managed by State Administration for Market Regulation (SAMR) (we will discuss NECIPS in more details in section “Key Platforms”). 

  • Public credit comprehensive evaluation

Public credit comprehensive evaluation on enterprises is led by the NDRC with the results published on the Credit China platform. It focuses on the following:

  1. litigation;

  2. breach of contract and loss of trustworthiness;

  3. operational non-compliance activities;

  4. qualifications and permits;

  5. awards;

  6. performance of social responsibilities;

  7. ratings from regulatory departments; and

  8. third party ratings.

The credit information used for evaluations mainly comes from:

  1. the National Credit Information Sharing Platform, which is an internal information sharing platform between government departments of which part is available to the public through the Credit China platform;

  2. credit information publicised by government departments and industrial associations; and

  3. significant events where public sentiment shows a resulting loss of trustworthiness and where governmental departments have involved to deal with such events.

The evaluation results grade enterprises on a scale from A to D. However the detailed evaluation indicators and formula have not yet been announced. Up until September 2019, the NDRC had evaluated 33 million enterprises across a number of industries and sectors including natural gas, coal, public road transportation and tourism and has published the results on the Credit China platform.

The evaluation results will be made available to the government departments responsible for supervising the relevant enterprises, as well as financial institutions and industrial associations, and may have a potential impact on the enterprises’ participation in bidding processes, financing activities and its overall reputation.

  • Blacklist and redlist mechanism

As mentioned above, the blacklist regime is widely used across multiple sectors. Two noteworthy parallel blacklist regimes are:

  • the lists for entities subject to joint awards for trustworthy conduct and those subject to joint disciplinary actions. These lists are led by the NDRC and published on the Credit China platform. As of May 2019, government departments had signed 43 MOUs on joint disciplinary actions, five MOUs on joint awards and three MOUs for both joint awards and joint disciplinary actions. They span various sectors such as public procurement, IP, food safety, social insurance and manufacturing. Common disciplinary actions include strengthened daily supervision, strict scrutiny on banking facility applications and restrictions on eligibility for government subsidies, land procurement, government concession projects and issuance of securities and bonds.

  • the blacklist regime for enterprises that have been involved in serious breaches of the law (or received multiple penalties over a period) or have engaged in untrustworthy conduct. This list is led by the SAMR and published in NECIPS. There are numerous consequences similar as above for an enterprise named in the list, in particular that its senior officers will be prohibited from assuming senior positions in other enterprises for three years if enterprises fail to discharge their relevant obligations within three years after it has been named on the abnormal enterprises list. 


In April 2019, the NDRC issued a notice on removing administrative penalty information on the Credit China platform and local credit information websites, with detailed guidelines on the process issued by the Credit China platform in July 2019. Different procedures apply depending on the type of non-compliance. For more serious matters, the administrative penalty information must be published for up to the full publication period of three years. In other cases, it can be removed and credit restored by applying to the platform’s local counterparts after the end of the relevant minimum publication period. Supporting evidence required for the application includes documents such as undertaking letters, evidence proofing the administrative penalties have been honoured, opinions from the relevant regulators and credit reports.

Enterprises can also apply for removal from the blacklist of enterprises with serious breaches of law and untrustworthy enterprises. Applications should be made to the SAMR and the relevant regulators who imposed the penalty. The minimum publication period for enterprises on the blacklist is one year under the draft rules (announced by SAMRfor public comments on 10 July 2019) for the blacklist of enterprises with serious breaches of law and untrustworthy enterprises. 


There are two major platforms for credit information publication, namely China’s National Enterprise Credit Information Publicity System (NECIPS) managed by SAMR and National Credit Information Sharing Platform (Credit China) managed by NDRC. The two platforms have some overlapping but also have different focuses. For example, NECIPS has more information on basic corporate information, share pledge information, litigation information, IP information than Credit China, but public credit comprehensive evaluation results are only available on Credit China. Currently there is no clear rule on how the two platforms interact with each other and whether they will be combined in the future.


NECIPS is managed by the SAMR. It is currently the most commonly used and comprehensive social credit information platform. It combines information on company registration, industrial licenses, food and drugs safety, special equipment safety, industrial product quality, IP, competition law enforcement, consumer protection, share pledges, moveable asset mortgages, abnormal enterprise lists and random inspection reports as well as including the blacklist of enterprises with serious breaches of law and untrustworthy enterprises. Information before October 2014 may, however, not be available on NECIPS.

National Credit Information Sharing Platform (Credit China)

National Credit Information Sharing Platform is an internal information sharing platform between government departments. Part of this platform is open to the public and this part is named Credit China. The Credit China platform is managed by the National Public Credit Information Centre under the NDRC. It is another comprehensive platform containing a variety of information including public information on comprehensive evaluation results, financial blacklists, details of administrative permits and penalties, government announcements and new rules, and sector information such as random inspections on food and drugs and energy resources sectors. It also provides a credit service with useful searching tools and a whistle blowing centre, to access information on weekly credit updates and provincial credit systems, tax violation cases, cases of dishonesty in government procurement and internet violations, among others.

The Credit China platform also contains comprehensive information regarding the credit awards and disciplinary actions at both the central and local level. It is also possible to access information on an individual’s social credit from this platform.


Many companies review the social credit system from a compliance perspective focusing on its impact on the company’s daily operations. However the social credit system not only impacts the daily compliance status of companies, but also their M&A projects and due diligence exercises. We would like to review it from a M&A perspective and recommend that companies take the new developments into consideration when planning M&A projects and consider the following:

  • Running searches on the key platforms as part of your preliminary due diligence on the target company. The platforms are relatively user friendly so searches can be easily done. The searches can preliminarily indicate whether there are any red flag issues about the target company. However, you should note that the information shown on the platforms may not be complete and up-to-date as the social credit system is still being developed and the accuracy of the information is largely dependent on local regulators collecting and submitting the information.

  • Tailoring your further due diligence based on the search results. For example, you may want to conduct specific EHS (environmental health & safety) due diligence if the target have been punished for EHS noncompliance.

  • Checking your search results against the information provided by the seller or target. As the social credit system develops, more transparency on company’s operation status is available. Due diligence that used to reply on information provided by the seller or target can now be conducted differently.

  • Taking social credit records into account in the pricing process given that any adverse record may have a negative impact on the target company’s reputation and business operation, financing position and ability to generate business.

  • Including a specific warranty and indemnity regarding the target’s good social credit records in your transaction documents.

  • If the target company has any adverse credit record, possibly including restoration of the record as an undertaking or even a condition precedent to completion.