Latest Cover Story | Personal Debt Solutions (AI Translation)
Listen to the full version
文｜财新周刊 丁锋 刘冉 张宇哲
By Caixin Weekly Ding Feng, Liu Ran, Zhang Yuzhe
文｜财新周刊 丁锋 刘冉 张宇哲
By Ding Feng, Liu Ran, Zhang Yuzhe, Caixin Weekly
吴青（化名）在山东青岛经营一家小型服装厂，二三十人的规模，主要是设计、生产和销售针对年轻女性的服装。生意还算不错的2019年底时，他决定追加投资扩张产能，向银行借入30万元个人经营贷。不料，很快新冠疫情暴发，服装厂业务量急剧下降，资金链开始吃紧。其间，吴青又向服装厂追加50万元个人信用贷款，包括银行消费贷、信用卡套现以及网贷，期望能渡过难关。
Wu Qing (a pseudonym) runs a small clothing factory in Qingdao, Shandong, with a size of about twenty to thirty people, primarily designing, producing, and selling apparel for young women. Business was fairly good by the end of 2019, so Wu decided to make additional investments to expand capacity and borrowed 300,000 yuan in personal business loans from the bank. Unexpectedly, the Covid-19 pandemic soon broke out, causing a sharp decline in the factory's workload and a tightening of the cash flow. During this period, Wu further increased his personal investments in the factory by adding 500,000 yuan in personal credit loans, including bank consumer loans, credit card advances, and online loans, hoping to navigate through the crisis.
然而，疫情之后，吴青的服装厂经营状况并未有太大改观，但80万元贷款即将到期，加之此前投入的70万元以房抵押贷款、工人工资支付等压力，吴青的服装厂资金越来越转不动。
However, after the pandemic, Wu Qing's garment factory did not see significant business improvement. With an 800,000 yuan loan coming due, combined with the pressure from a prior 700,000 yuan mortgage loan for the factory and the need to pay workers' wages, the factory's cash flow is increasingly strained.
- DIGEST HUB
Digest Hub
Back
- Wu Qing runs a small clothing factory in Qingdao and faced severe financial hardship due to COVID-19, resulting in an 800,000 yuan debt.
- Debt mediation companies have proliferated, offering services like debt restructuring but often engaging in misleading practices.
- Rising personal loan non-performing rates in Chinese banks highlight personal debt issues, prompting some banks to offer relief measures like interest reductions and installment plans.
The article discusses the personal debt crisis faced by many individuals in China, highlighting cases like Wu Qing, who runs a small clothing factory, and Li Gang, a young individual caught in the debt spiral. Wu Qing faced severe financial strain after expanding his business before the COVID-19 pandemic, which led him to borrow substantial sums. However, post-pandemic, his factory did not recover as expected, leaving him in debt. Similarly, Li Gang was encouraged to invest by his company's management, only to face company instability and a dwindling personal financial situation, pushing him into borrowing more to cover existing debts. [para. 1]
The emergence of debt mediation companies as third-party intermediaries claiming to offer debt restructuring solutions is discussed. Many of these companies, operating under vague names like "XYZ Legal Consulting," promise debt reduction, restructuring, or assistance in getting low-interest loans to refinance high-interest debts, although not all are legitimate. Since 2023, regulatory authorities have been warning about potential risks associated with unregularized debt intermediaries as fraudulent activities rise. [para. 2]
The article further explains that China's demand for personal debt settlement has soared due to a lack of personal bankruptcy laws. In contrast, developed Western economies have well-established systems for managing personal debt crises, including legal frameworks for personal bankruptcy and debt reorganization. The complexity increases in China as regulations do not address "honest but unfortunate" debtors adequately, highlighting banking sector operational challenges. In China, overdue payments have increasingly burdened individuals, particularly due to economic instability, with banks being pressured into restructuring retail loans as well. [para. 3]
The rising trend of non-performing personal loans is in focus, with examples of bank data indicating a significant increase in bad loans. Joint-stock banks and smaller city banks report higher non-performing loan rates compared to larger state banks. This hinders their financial stability and echoes a need for effective debt resolution measures. The pandemic has affected people's incomes and ability to repay, affecting the retail lending sector significantly. [para. 4]
The article elucidates the current methodologies through which banks handle non-performing loans, often opting to sell them in bulk at significant discounts to Asset Management Companies (AMCs), who may sell them further or use them for legal actions. Shen Zebing of Yixin Investment Development explains that they mediate with debtors to resolve payment issues more sympathetically, given banks’ reluctance to engage in principal cutting. [para. 5]
There is also a surge in illegal debt mitigation claims, as highlighted by fraudulent "debtor protection" activities where supposed agencies promise to manage or reduce debts for a fee, often misleading debtors. Authorities in Ningxia exposed such illegal schemes in 2024. The lack of structured mechanisms for getting debt relief gives rise to intermediary scams exploiting desperate debtors. [para. 6]
Internationally, countries like the United States have instituted mechanisms to handle personal debts—such as the Bankruptcy Act of 1978 and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005—providing frameworks for liquidation or reorganization of debts. Debt management agencies offer services for individuals in financial distress under government policy oversight. [para. 7]
In conclusion, the article suggests that greater systemic oversight and legal frameworks for personal debt restructuring in China could alleviate financial duress for individual debtors like Wu Qing and Li Gang. Recognizing the inadequacies of current systems without comprehensive personal bankruptcy measures is paramount. Policymakers need to address this issue, considering international best practices, to effectively manage this financial crisis and prevent similar occurrences in future economic downturns. [para. 8]
- Wells Fargo
- The article mentions that Wells Fargo's small loan department senior vice president, Xiao Bing, explains the strategies used in the U.S. for collecting debts, including principal discounts and interest reductions to assist individuals in financial difficulties. These strategies are part of varied debt collection models used in the United States, aiming to balance recovery and provide acceptable repayment solutions for individuals facing financial challenges.
- Yixin Investment Development Co., Ltd.
- Yixin Investment Development Co., Ltd. (Yixin) is a private institution that collaborates with local licensed asset management companies (AMCs) to purchase and manage individual non-performing loan portfolios, focusing mainly on loans in automotive and catering sectors. Yixin acts as an intermediary, facilitating communication between debtors and AMCs, employing AI and big data to assess debt relief possibilities, and has established financial dispute mediation centers in approximately 30 provinces across China.
- China Construction Bank
- As of the first half of 2024, China Construction Bank (CCB) had a personal loan and advance non-performing loan rate of 0.84%, up from 0.66% in December 2023. Notably, CCB's personal business loan non-performing rate increased significantly, from 0.95% in December 2023 to 1.57% by mid-2024, marking the largest increase among major state-owned banks.
- Industrial and Commercial Bank of China
- The article mentions that the Industrial and Commercial Bank of China (ICBC)'s personal loan non-performing rate is on an upward trend, similar to other major state-owned banks, due to increased personal debt difficulties faced by consumers and small business owners in recent years.
- Agricultural Bank of China
- The article notes that the Agricultural Bank of China's personal loan non-performing rate is increasing, similar to trends seen in other major state-owned banks like Construction Bank, Industrial and Commercial Bank, and Bank of China. This reflects broader issues in the personal loan market, particularly in personal housing mortgages and personal business loans.
- Bank of China
- The article mentions that like other major state-owned banks, the Bank of China is experiencing an upward trend in personal loan default rates. This is part of a broader pattern across the banking sector, with non-performing loan rates increasing for personal operating and credit card loans in particular.
- Bohai Bank
- By the first half of 2024, Bohai Bank's non-performing loan (NPL) rate for individual loans had increased to 3.30%, a significant rise of 1.05 percentage points from the end of 2023. Its NPL rate for personal consumption and business loans reached 9.30% and 5.24% respectively in the first half of 2024, up from 4.44% and 3.24% at the end of 2023.
- China Zheshang Bank
- As of the first half of 2024, China Zheshang Bank reported an individual loan non-performing rate of 1.85%. This indicates an increase in non-performing loans within its portfolio, reflecting broader trends seen across various banks in China where personal loans are showing higher rates of default and financial distress.
- Huaxia Bank
- As of the first half of 2024, Huaxia Bank's individual loan non-performing rate was 2.18%. The article indicates that this is part of a broader trend where many banks are experiencing increasing non-performing rates in their personal loan portfolios.
- Shanghai Pudong Development Bank
- The article does not provide specific information about Shanghai Pudong Development Bank. Instead, it discusses general issues related to personal debt management, financial distress in small businesses, and broader trends in the banking industry's handling of personal loans and debts.
- Industrial Bank
- The article does not provide specific information about Industrial Bank. It discusses various financial institutions' approaches to personal debt management and broader issues related to personal debt in China but does not mention Industrial Bank by name or provide details related to its operations or policies.
- Meituan
- The article mentions Meituan in the context of loans. It refers to various loans taken out by an individual, including a 130 million yuan mortgage, over 50 million yuan from various online platforms like Meituan's business loan, as part of a larger total debt faced by a small business owner dealing with financial pressures in the restaurant industry.
- By the end of 2019：
- Wu Qing decided to make additional investments to expand his factory capacity by borrowing 300,000 yuan in personal business loans from the bank.
- Since 2023：
- Regulatory authorities have repeatedly warned of the potential risks associated with the field of debt mediation and restructuring.
- By the end of December 2023：
- China Construction Bank's non-performing rate for personal loans and advances was 0.66%, and for personal business loans, it was 0.95%.
- In 2024：
- Li Gang, who just turned 30, found himself facing financial difficulties due to previous investments, reduced company performance resulting in halved wages, and high debt.
- As of the first half of 2024：
- China Construction Bank's non-performing rate for personal loans and advances increased to 0.84%, and for personal business loans, it rose to 1.57%.
- By the end of June 2024：
- The non-performing rate for personal credit card loans at China Construction Bank increased to 1.86%.
- In the fourth quarter of 2024：
- There were 443 transactions of non-performing loan transfers listed through the Banking Registration Center involving a total outstanding principal and interest of 123.48 billion yuan.
- PODCAST
- MOST POPULAR
Sign in with Google
Sign in with Facebook
Sign in with 财新