#34: The EVOLUTION and TRUTH of China's Digital Identity System!

Let's explore the evolution of China's digital identity systems, a saga that intertwines technology, governance, and global implications.

Greetings, dear readers!

In the next few minutes, you're about to dive into a world where over 1.4 billion identities are being digitally transformed, where systems handle billions of data points daily, and where the balance between privacy and security shapes the future of a nation and beyond.

Let's explore the evolution of China's digital identity systems, a saga that intertwines technology, governance, and global implications.

Let’s study the societal shifts, economic impacts, and privacy versus security dichotomy unfolding in one of the world's most populous countries.

In the late 1990s, China's digital identity landscape was nascent at best, characterised by rudimentary systems that were more about administrative record-keeping than sophisticated identity management.

These rudimentary systems included early attempts to digitise the "hukou" household registration system, a critical tool for population management and resource allocation in China.

However, these early efforts faced challenges such as inconsistencies in data formats and a lack of interoperability between different regional systems.

This lack of standardisation hindered the effectiveness of the hukou system in tracking migration patterns and providing accurate population data for national planning and resource allocation.

For example, a 2003 study by the Chinese Academy of Social Sciences estimated that inconsistencies in hukou data led to an undercounting of rural-to-urban migrants by as much as 10%, impacting the government's ability to provide adequate social services and infrastructure in rapidly urbanising areas.

The government's initial foray into the identification system was introducing the Resident Identity Card in 1985, which later evolved into a more digital format.

But the real push towards a digital identity began in the early 2000s, with the rise of the Internet and mobile technology in China.

However, at this time, China's early digital identity efforts were primarily about improving administrative functions.

For instance, by 2005, the Chinese government had introduced an electronic ID card system that used RFID technology.

This was aimed to replace paper-based records with digital ones for easier management and verification.

This system was tested in cities like Beijing and Shanghai for hotel check-ins and public transportation applications.

For instance, Shanghai’s adoption of electronic ID cards streamlined the process of obtaining driver's licenses, reducing application processing times by 15%.

Furthermore, a study conducted in Beijing found a 10% reduction in identity theft cases following the implementation of the electronic ID card system.

But, significant moves began in the 2010s, with the emergence of Alipay and WeChat Pay, platforms that would later become the backbone of China's digital identity infrastructure.

Alipay, operated by Ant Group, and WeChat Pay, operated by Tencent, revolutionised payment methods and laid the groundwork for massive identity verification.

And they not only used this to facilitate financial transactions but also became integral to identity verification processes.

For example, users could open bank accounts remotely by completing facial recognition checks through their Alipay or WeChat Pay apps.

These platforms also enabled age verification for online games and streamlined the process of booking train tickets, eliminating the need for physical identification documents in many cases.

For instance, by 2020, WeChat had integrated digital ID card functionalities, allowing users in cities like Guangzhou to check into hotels or access government services without physical ID, using facial recognition for identity confirmation.

This was a precursor to what would become a national strategy. The Chinese government observed these private-sector innovations and decided to scale them up for government use.

By 2014, learning from fintech giants, the Government’s National Development and Reform Commission (NDRC) launched initiatives to promote "Internet Plus," integrating digital identity into public services to make them more accessible and efficient.

The real turning point was the introduction of the Social Credit System in 2014. While controversial, this concept was designed to link digital identity with social behaviour, governance, and economic activities.

This system uses a complex algorithm to assign citizens a social credit score based on various factors, including their financial creditworthiness, online behaviour, adherence to traffic laws, and social interactions.

Individuals with high scores are rewarded with benefits such as easier loan access and faster government service approvals. In contrast, those with low scores may face restrictions on travel, employment opportunities, and access to social services.

Its pilots began in cities like Rongcheng in 2019. In these cities, behaviours like traffic violations or charitable acts influence one's credit score, affecting public service or loan eligibility.

Some see this system as enhancing trust and societal order, but it raises significant privacy issues, as detailed personal behaviours are monitored and scored.

It remains in extensive pilots across multiple Chinese cities even in 2024. Its goal is to continue building a more substantial and expansive score for citizens based on various aspects of their lives, influencing their access to services, loans, and even travel.

In a pilot program conducted in Suzhou, authorities reported a 20% decrease in instances of jaywalking and a 15% reduction in public transportation fare evasion following the implementation of the Social Credit System.

However, the system has also faced criticism for its lack of transparency and due process.

A 2022 report by Amnesty International highlighted cases where individuals were unfairly penalised due to errors in the scoring system or for expressing dissenting opinions online. This raises concerns about the potential for the system to be used as a tool for social control and suppression of dissent.

Critics argue that this system could lead to a massive invasion of privacy, yet proponents see it as a tool for enhancing trust and order in society.

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By 2023, the Chinese government had also initiated the National Data Bureau (NDB) to centralise and streamline data governance, including identity data.

This move was part of a broader strategy to harness data as a national asset, reflecting the government's ambition to control data flows domestically and internationally.

The NDB was tasked with overseeing the collection, storage, and processing of vast amounts of data, including personal information, financial transactions, healthcare records, and social media activity.

This centralised approach to data management raises concerns about potential privacy violations and the possibility of mass surveillance. It was meant to bring together all the data generated by all kinds of entities, public or private, from every Chinese national!

Critics argue that the NDB's broad mandate and lack of independent oversight could enable the government to access and utilise sensitive personal data for purposes beyond its stated objectives. This has led to calls for greater transparency and accountability in the NDB's operations.

The NDB laid the base for the introduction of the blockchain-based RealDID.

This project, backed by giants like China Mobile and UnionPay, proposed to potentially provide Decentralized Identifiers (DIDs) for all 1.4 billion citizens. This would allow for secure logins using private keys across various platforms.

It was finally launched in 2023, marking a significant step towards integrating blockchain for identity management. The government mandated that all people over 16 have one such identifier, claiming it would give citizens control over their digital identities through decentralised methods.

The government has already integrated this into the consumer-facing platforms of many Chinese tech giants, such as AliPay, WeChat, and others, to drive traction.

By the end of 2023, over 50 million people had registered for RealDID, and the government aims to adopt it nationwide within the next five years. Early applications of RealDID include secure access to government services, online banking, and e-commerce platforms.

All of this has cemented China’s standing in using blockchain to drive population-scale data identification and management systems. These systems not only give people immense control over their own data but also make strategic use of it in economic and social governance possible.

What took this to a serious scale was the advancements made by the private sector.

For example, companies like SenseTime specialise in AI, particularly facial recognition.

Thanks to the Government becoming the biggest client of companies like these, its technology is used for security, customer service, health checks, and even in judicial systems for identifying suspects.

By the end of 2023, SenseTime's facial recognition technology was used in over 100 cities in China for various public safety and service applications, highlighting the scale and pervasiveness of AI in identity management.

This translates to surveillance coverage for approximately 400 million people across China. SenseTime's technology is deployed in various settings, including airports, train stations, and public squares, enabling real-time identification and tracking of individuals.

It is also used for access control in residential buildings and for verifying identities during financial transactions.

This has powered SenseTime’s valuation to around $12 billion. This is just one company; there are many more like it. That is a testament to how integral AI has become in identity management in China.

However, this growth comes with challenges, particularly regarding privacy. Facial recognition technologies have been criticised for potential biases and overreach.

Studies have shown that some facial recognition algorithms exhibit higher error rates for individuals with darker skin tones or certain facial features. This raises concerns about potential discriminatory outcomes, particularly in law enforcement applications.

Furthermore, the widespread use of facial recognition technology without adequate safeguards can lead to a chilling effect on freedom of expression and assembly.

Anyhow, if you compare, in the US, digital identity systems are more fragmented, with private companies like Google and Apple providing identity solutions primarily for their ecosystems, while government initiatives like Login[dot]gov aim for a unified approach but with less central control compared to China.

In India, the Aadhaar system, which by 2023 had enrolled over 1.3 billion people, represents a significant parallel in scale but differs in its legislative and operational framework, focusing more on welfare rather than social control.

China's system is uniquely geared towards comprehensive social governance, integrating aspects of personal behaviour into the identity framework.

But, geopolitically, China's digital identity systems have implications far beyond its borders.

The export of technology, especially to countries under the Belt and Road Initiative, involves spreading digital identity solutions, raising questions about data sovereignty and surveillance in many of its partner countries, especially in Africa.

For example, Zimbabwe partnered with CloudWalk Technology, a Chinese AI company, to develop a national facial recognition system. Similar projects have been implemented in Kenya and Angola, raising concerns about the potential for these technologies to be used for authoritarian purposes.

The US has viewed this expansion with caution, leading to restrictions on certain Chinese tech firms like Huawei and ZTE. The US cites security concerns over the control of personal data.

In 2019, the US Department of Commerce added Huawei to its 'Entity List,' restricting its access to American technology and components. This move was primarily motivated by concerns that the Chinese government could use Huawei's equipment for espionage and data theft.

Sure, the benefits are real.

China's digital identity systems are scalable and efficient, which has reduced administrative burdens, enhanced security measures against fraud and crimes, and improved governance efficiency.

However, the challenges are also profound.

The government’s moves suggest a future where identity management could become even more seamless but also more intrusive.

With the government's push towards a 'digital society,' integrating IoT with identity systems could mean that every interaction, from buying groceries to accessing public transport, is authenticated digitally, raising both efficiency and privacy concerns.

Thus, privacy concerns are at the forefront, with fears of state surveillance becoming normalised. Integrating such systems also poses technical challenges, like ensuring data integrity, managing cyber threats, and navigating the legal frameworks that are still catching up with technological advancements.

This concern is also driving up investments in cybersecurity and data privacy. Data protection laws have also been tightened on the Government’s end, with the Personal Information Protection Law (PIPL) and Data Security Law (DSL) coming into effect. These laws aim to regulate how both the public and private sectors handle personal data.

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That said, on the global stage, Chinese tech companies are in fierce competition with US and European counterparts, not just in technology but in setting standards for digital identity.

The GDPR in Europe and the CCPA in California have set benchmarks for privacy, influencing how Chinese companies adapt their practices overseas. Yet, with its state-centric approach, the Chinese model offers a different blueprint that some countries might find appealing for its control and efficiency.

Returning to China, the future outlook involves a deeper integration of digital identity into everyday life, potentially leading to a fully digital society where identity, credit, and social behaviour are interlinked.

Imagine a scenario where your digital identity authenticates every interaction, from purchasing groceries to accessing public transportation. However, this scenario presents the ongoing challenge of balancing privacy with security.

The world watches, learning from both the successes and the cautionary tales of China's digital identity journey, as it could set precedents for global digital governance.

As we conclude this exploration, the story of Chinese digital identity stands out as a narrative of control, innovation and privacy.

Best,
Jayant Mundhra

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