“Credit Use” and Cost of Discredit: The Supreme People’ Court and Zhima Credit Cooperating to Punish “Lao Lai”

Abstract

Severe punishment constitutes an important condition for the reputation mechanism to play a part in governance. We believe that “credit use” can increase the cost of discredit and drive the reputation mechanism to play an effective role, and further analyze and test this point of view with the case of the Supreme People’s Court and Zhima Credit cooperating to punish “Lao Lai” (i.e. dishonest person). The case study discovers the follows: First, the cost of discredit exerts a significant influence on the effect of the reputation mechanism. Second, the increase of the scenarios where credit is used can effectively raise the cost of discredit. Third, market-oriented operation of credit investigation will evidently improve “credit use” of society and strengthen the role and effect of the reputation mechanism. Fourth, the reputation mechanism functions as a great support to the legal mechanism.

Case Comments

Same as laws, reputation is also a constraint mechanism that maintains the order of people’s social and economic activities. Laws force people to abide by statutory rules through the coercive power of national judicial organ, while reputation urges people to abide by social morals and rules through social public opinion (praise or condemnation) in a non-compulsory manner. It is generally believed that laws should be the most powerful constraint force compared to the reputation mechanism. However, through careful observation we find that law is not everything. For example, the person concerned may refuse to execute the judgment after the court rules, or the “Lao Lai” issue arises everywhere. In this case, only by applying the reputation mechanism to support the legal mechanism can the problems be effectively solved.

The case of the cooperation between Zhima Credit and the Supreme People’s Court on solving the “Lao Lai” issue in debt disputes fully shows the role of the reputation mechanism and demonstrates that the reputation mechanism and legal mechanism complement each other in maintaining social order. Moreover, this case also proves that a sound credit system determines the effect of the reputation mechanism.

When referring to credit system construction, people generally mean the collection (recording) and evaluation of credit information on people’s behaviors, which means credit institutions can record people’s credit information timely and accurately and give correct comments, i.e. the “credit collection” and “credit evaluation” mentioned in this case. However, from this case we sincerely feel that “credit collection” and “credit evaluation” are not enough to exert a strong deterrent, but “credit use” shall be given attention to. Credit use mans that people reward the honest and punish the dishonest based on the results of credit collection and evaluation. Without credit use, reputation would show no value and people would take no notice of reputation. Therefore, the reputation mechanism would lose its constraint force. This case emphasizes that “credit collection”, “credit evaluation” and “credit use” are the three indispensable links in social credit system construction. Only by attaching importance to all the three links can the virtuous cycle of the social credit system be formed and the rapid development of honest society be promoted in China.

How to promote society to accept the results of credit evaluation and to use credit? Apparently, merely depending on the government force is not enough. This case proves that by utilizing the force of market and driving enterprises’ behaviors with commercial interests, it not only delivers evaluation results to all scenes that demand credit use, but also explores the potential scenes for credit use and maximizes the effect of credit collection and evaluation. Hence, the construction of social credit system must rely on the force of market.

It shall no noted that Zhima Credit can only reach limited scenarios of credit use. Upon the success of the pilot cooperation, the Supreme People’s Court shall further promote the cooperation model and cooperate with more credit institutions, thus to acquire better results. However, it shall adopt open and equal standards when selecting the cooperative credit evaluation institutions to assure the equal competition in the credit industry. Meanwhile, the credit center of the People’s Bank of China shall play its important role as the “national main force” in the credit industry, particularly in credit use.

Commentator: Wang Jun¹³