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Firms at risk of sanctions as China's social credit system looms, EU group warns

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Firms at risk of sanctions as China's social credit system looms, EU group warns

A European business group urged foreign companies operating in China to prepare for the rollout of the country's corporate social credit system, which it said could pose serious risks such as sanctions and blacklisting.

The corporate social credit system, which will be fully implemented by 2020-end, aims to reward or sanction a company based on an algorithm-based rating process, the European Union Chamber of Commerce in China said in a report. That process takes into account factors such as tax, product quality and data license compliance, among others.

Under the rules, the rating of a multinational company in China will be based on approximately 300 requirements. Companies who fail to comply with the system's requirements "risk serious repercussions like sanctions or even blacklisting," the report said.

Aside from penalties and court orders, sanctions may also include targeted audits, removal from preferential policies, and public blaming and shaming, it added.

"China's Corporate Social Credit System is the most concerted attempt by any government to impose a self-regulating marketplace, and it could spell life or death for individual companies," said Jörg Wuttke, president of the EU Chamber of Commerce in China.

To prepare for the system's looming implementation, European companies need to evaluate their performance, identify gaps in compliance and adjust their internal processes to ensure a good rating, the report said.

"Businesses in China need to prepare for the consequences, to ensure that they live by the score, not die by the score," Wuttke added.