Cover Story: How to Provide Relief as Personal Debt Piles up in China (AI Translation)
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文｜财新周刊 丁锋 刘冉 张宇哲
By Caixin Weekly's Ding Feng, Liu Ran, Zhang Yuzhe
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 (an alias) operates a small clothing factory in Qingdao, Shandong, with a crew of twenty to thirty people. The business primarily focuses on the design, production, and sales of clothing for young women. As business was relatively good by the end of 2019, Wu decided to invest further to expand capacity, taking out a personal business loan of 300,000 yuan from the bank. Unexpectedly, the Covid-19 pandemic soon broke out, causing a sharp decline in the factory's business and creating financial strain. During this period, Wu took an additional personal credit loan of 500,000 yuan for the factory, including bank consumer loans, credit card cash-outs, and online loans, in hopes of weathering the storm.
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 operational improvements. With an 800,000 yuan loan nearing maturity, in addition to a previous 700,000 yuan mortgage loan and the pressure of paying workers' wages, Wu Qing's factory is facing increasing financial liquidity challenges.
陷入债务困境的吴青，频频收到债务中介的电话，各个社交媒体也不断向他推送关于“债务优化”“债务重整”的广告。这些多以“某某法律咨询”或“某某管理咨询”名称注册的债务中介，有些表示可以代替债务人与金融机构协商债务重组，如银行信用卡账单重新协商为免息分期、网贷平台可以做二次分期或者延期一次性还清本金；有些表示可以帮债务人申请低息银行贷款以置换高息网贷；有些承诺可以帮助债务人协商逾期贷款的停催缓催；有些甚至声称网贷、信用卡和银行贷款可以谈到本金打六折；还有一些债务中介帮助债务人债务重整的模式是提供高息垫资，从中收取10%—20%的“砍头息”。
Wu Qing, who is mired in debt, frequently receives calls from debt intermediaries, while various social media continuously push him advertisements about "debt optimization" and "debt restructuring." These debt intermediaries, often registered under names like "XX Legal Consulting" or "XX Management Consulting," offer various services. Some claim they can negotiate debt restructuring with financial institutions on behalf of debtors, such as reconciling bank credit card bills to interest-free installments or arranging secondary installments or extensions to settle principal on online lending platforms. Others say they can help debtors apply for low-interest bank loans to replace high-interest online loans. Some promise to help negotiate a pause or slow down in the collection of overdue loans. A few even assert they can negotiate loans from online lenders, credit cards, and banks down to 40% off the principal. Additionally, some debt intermediaries offer debt restructuring for debtors through high-interest advances, charging a "front-end fee" of 10% to 20%.
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- Wu Qing's garment factory in Qingdao faces severe financial challenges with accumulated debts totaling 1.5 million yuan due to expansions and the pandemic's impact.
- Rising personal debt issues in China have increased demand for debt restructuring services, although many intermediaries in this field operate with questionable practices, often leading to fraud.
- Comparatively, developed countries have established legal frameworks for personal bankruptcy and debt restructuring, providing reference models for potential Chinese reforms.
Wu Qing, an alias for a small clothing factory owner in Qingdao, faced significant financial hardship amid the onset of the COVID-19 pandemic. Initially, his business thrived by the end of 2019, leading him to expand and acquire a 300,000 yuan business loan. However, the pandemic drastically affected operations, prompting Wu to take on an additional 500,000 yuan in debt. Even now, with loans nearing maturity and a hefty mortgage to manage, Wu's factory faces severe financial strain. Wu frequently receives offers from debt intermediaries proposing various debt restructuring solutions, often presented under corporate facades promising negotiating abilities and restructuring at significant discounts. Moreover, these intermediaries frequently advertise through social media, supporting Wu's need for debt relief amidst an absence of personal bankruptcy laws in China [para. 1][para. 2][para. 3].
The demand for personal debt resolution has surged in recent years due to diminishing incomes and poor financial management among individuals, exacerbated by aggressive consumer loan marketing. Many, like Li Gang, a professional in his 30s, find themselves in rigorous debt traps, having invested borrowed funds into failing ventures. Another example is Fu Peng, a small enterprise owner with mounting debts and a struggling restaurant business. Banking data reflect these patterns, showing an increase in non-performing personal loans, driven largely by personal business loans and aggravated by pandemic-related challenges [para. 4][para. 5][para. 6].
In response, financial institutions have devised strategies for debt management, encompassing interest waivers, penalty reductions, and restructuring opportunities. However, navigating these processes often necessitates proof of financial distress and a good repayment track record. Despite the aid offered, many financial institutions withhold transparency on debt negotiation conditions, leaving debtors reliant on social strategies to gain favorable terms. The mediation between individual debtors and financial entities remains complex, as both parties evaluate the genuine need for financial relief [para. 9][para. 10][para. 11][para. 12][para. 13].
While some countries have well-established systems for personal debt restructuring through legal and non-legal channels, China's approach remains cautious, considering the social dynamics and preventative challenges of encouraging irresponsible borrowing. International practices, such as the U.S.'s comprehensive legal framework for bankruptcy and debt reorganization, provide sustainable models that could inspire policy development in China. These international examples demonstrate the importance of preventive measures and structured relief systems to aid individuals eligible for fresh financial starts. China, however, grapples with distinguishing honest debtors from opportunistic ones as it tests personal bankruptcy systems regionally [para. 16][para. 17][para. 18][para. 19][para. 20][para. 21][para. 22].
- Wells Fargo
富国银行 - The article mentions Xiao Bing, the Senior Vice President of Wells Fargo's small loans department, discussing U.S. collection models for overdue personal loans. These methods include principal discounts, interest reductions, and deferred payment negotiations, aiming to determine optimal strategies for debt recovery. Despite potential tax issues with principal discounts in the U.S., banks and customers still find them beneficial for negotiations.
- China Construction Bank
建设银行 - The article mentions that as of the first half of 2024, China Construction Bank's (CCB) personal loan and advance non-performing loan (NPL) rate rose to 0.84%, up from 0.66% at the end of 2023 and 0.61% in mid-2023. Notably, its personal business loan NPL rate increased from 0.95% at the end of 2023 to 1.57% in the first half of 2024, marking the largest increase among state-owned banks.
- Industrial and Commercial Bank of China
工商银行 - The article suggests that the Industrial and Commercial Bank of China (ICBC), along with other major state-owned banks, is experiencing an increase in personal loan delinquency rates. Similar to its peers, ICBC is facing issues with rising non-performing loans, especially in personal mortgage and business loans, due to economic pressures and changes in the domestic and international environment.
- Agricultural Bank of China
农业银行 - The article indicates that Agricultural Bank of China, along with other major banks, is experiencing an increase in the non-performing loan rate for personal loans. This trend is noted across major types of personal loans, highlighting rising financial pressures on individual borrowers and pointing to broader economic challenges faced by these institutions in managing personal debt recovery.
- Bank of China
中国银行 - The article mentions that the Bank of China, alongside other major state-owned banks like the Industrial and Agricultural Banks, has experienced an increase in personal loan non-performing rates. This trend reflects the growing challenge of individual debt issues. However, the Bank of China is engaging in efforts for risk mitigation, including measures to manage loan restructuring.
- China Bohai Bank
渤海银行 - As of the first half of 2024, China Bohai Bank's non-performing loan (NPL) ratio for individual loans reached 3.30%, marking a significant increase of 1.05 percentage points from the end of 2023. Notably, both personal consumption loans and personal business loans had particularly high NPL rates, at 9.30% and 5.24% respectively.
- China Zheshang Bank
浙商银行 - As of the first half of 2024, China Zheshang Bank's non-performing individual loan rate was 1.85%. This reflects the rising trend in bad loans among China's banks, with Zheshang Bank experiencing one of the higher rates compared to its peers.
- Huaxia Bank
华夏银行 - As of the first half of 2024, Huaxia Bank's individual loan non-performing rate was 2.18%. This is part of a general trend of rising non-performing rates among various banks, reflecting the increased challenges faced by individuals and businesses in managing debt. The bank, like others, is likely dealing with issues related to personal and microenterprise loan defaults.
- Shanghai Pudong Development Bank
浦发银行 - The article does not provide specific information about Shanghai Pudong Development Bank (SPD Bank). It generally discusses issues related to personal debt restructuring, banks' responses to rising personal loan non-performance rates, and various cases of debt distress, but SPD Bank is not mentioned directly.
- Industrial Bank
兴业银行 - The article mentions that as of mid-2024, Industrial Bank's individual loan non-performing rate was 1.42%. This indicates a trend of increasing non-performing rates within the bank's personal loan sector, which includes individual housing loans, business loans, credit card loans, and personal consumption loans.
- Meituan
美团 - The article mentions Meituan in the context of a 42-year-old individual named Fu Peng, who operates a restaurant in Hefei. Fu Peng has significant debt, including approximately 130 million RMB in loans secured against property, and over 50 million RMB in loans from various online platforms, including Meituan Business Loans. Despite his restaurant's modest performance, he struggles to meet the nearly 60,000 RMB monthly repayment obligations.
- Shenzhen Yixin Investment Development Co., Ltd.
深圳市意鑫投资发展有限公司 - Shenzhen Yixin Investment Development Co., Ltd. (Yixin) is a private institution that collaborates with local licensed AMC to purchase and manage non-performing personal loan asset packages. They serve as intermediaries, facilitating negotiations between debtors and AMCs to manage debt relief by employing AI and big data for debt evaluation. They have established nearly 30 financial dispute mediation centers across China to aid in resolving personal debt issues.
- By the end of 2019：
- Wu Qing decided to take out a personal business loan of 300,000 yuan to expand the factory's capacity.
- 2023：
- Regulatory authorities repeatedly cautioned about potential risks associated with debt intermediaries.
- Mid-2023：
- The company Li Gang worked for started to deteriorate rapidly, nearing bankruptcy.
- First half of 2024：
- China Construction Bank's non-performing rate for personal loans increased to 0.84%.
- First half of 2024：
- Bohai Bank's personal loan non-performing loan ratio rose to 3.30%.
- 2024：
- The total amount of interest and fee deductions at a bank in western China exceeds 70 million yuan.
- Fourth quarter of 2024：
- There were 443 non-performing loan transfer transactions listed via the Banking Financial Asset Registration and Transfer Center.
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