In China, an increasing number of people are using their income to pay off debt. This is a problem because not every yuan spent on debt is invested in clothing, gadgets, goods in general, or entertainment. And if it is not allocated to that, the money does not circulate, affecting both businesses and the overall economy. In fact, it is one of the factors that could trigger a financial meltdown in the Asian giant.

And one of the ways to convince those who do not pay their debt is through arrest or, in extreme cases, direct punishment.

Economy during low hours. China entered 2024 with three major economic challenges. They are experiencing an unprecedented demographic collapse. They remain the world’s second most populous country, but demographic forecasts are not encouraging and a decline is underway. On the other hand, there is a huge real estate crisis. The government has no business bailing out companies, and citizens’ homes have lost a lot of their value.

The Chinese are buying homes, but to Beijing’s chagrin, they are also buying in other countries. Moreover, the economic crisis is reducing the number of billionaires. Finally, there is the increasing debt of a growing population.

Indebtedness. A few months ago, The Wall Street Journal reported on a specific case: Qin Huangsheng, a young woman who left her hometown at the age of 16 to work in a factory. This is a situation that many young people reject today, but this story provides insight into the problem in many Chinese homes today. It is estimated that the government-run (and public) blacklist of defaulters has increased by 50% since the end of 2019, reaching a total of 8.3 million people.

It doesn’t seem like much considering that this is a country with a population of 1.4 billion, but household debt is 50 percent higher than it was five years ago, and if we take the last 14 years into account, the debt has reached 2.2 billion lira. In 2010, the dollar rose to over 11,000 million today. That’s a far cry from the 17.5 billion US debt (student debt exceeds the GDP of some countries), but it should be noted that the income of each Chinese household is much lower.

HouseIn China, the government does not allow anyone to declare bankruptcy in order to pay off their debts and move on with their life, so it does not matter whether you have gotten into debt from living beyond your means, not paying off credit cards, not being able to pay off a loan or mortgage, or simply due to a bad streak: the penalty is the same for everyone.

Speaking of mortgages, with China’s real estate boom, some buyers have turned to buying homes they see as investments. But when the bubble bursts, prices plummet and investors find themselves with debt they can’t afford. In fact, the number of foreclosed homes is set to increase by 43% to 400,000 properties by 2023.

and punishments. The country has three ways to deal with defaulters. One is to harass the companies that are committed to collecting these payments. Another is to directly punish citizens. This is the case of Qin, who is 40 years old and has $40,000 in debt and a monthly salary of $400, and if you have debt, you can’t afford certain things because China blocks operations.

For example, TWSJ writes that they cannot go on vacation or stay in certain hotels. They also cannot get expensive insurance policies, they cannot get public jobs, their wages are garnished, and they are even prevented from traveling by high-speed train. Qin says that while traveling on one of the slow trains, he wonders if other passengers are also in debt. Finally, the government is pursuing (even arresting) those who can pay their debts but refuse to pay them more harshly.

Protest. Many people have gone into debt by applying for loans, which has been easy in recent years, both because banks issue tens of millions of credit cards each year and because apps like Alipay and WeChat (private) allow them to get loans. . When debts are not paid, the government steps in, leaving debtors a small allowance to survive. The problem is that sometimes it is not enough.

One of them is a 38-year-old man with a child and an allowance of around 9,500 yuan (about 1,200 euros). He requested that the allowance be increased to 12,500 yuan (about $1,580) to cover expenses, but the judges not only rejected the request, but also reduced the already set amount by 40% because they thought he owed too much money.

Black mirror. This, along with a very interesting aspect, has facilitated the emergence of a black market for lenders: high-speed train ticket dealers. To get a ticket on one of these trains, you have to present an official document, and if you don’t have one, you have to travel slower. This can lead to loss of jobs and opportunities, and authorities have uncovered a network of dealers who book high-speed tickets in their names to sell to debtors.

There are analysts who predict that China needs a personal bankruptcy system so that creditors and debtors share the cost of debts. This would help achieve Xi Jinping’s goal of a fairer country, but there are also those who oppose the measure because they see it as a way to encourage more people to avoid debt.

What is clear is that China’s economic situation is not one that will help people already in debt due to the housing collapse and labor crises the country is facing.

Image | Nuno Alberto

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