E COnOMY
is misplaced,” says Wang Jun, director of the
CEIBS-World Bank China Centre for Inclu-
sive Finance in his notes for the republishing
of his 2005 The Chinese Banker article on
chang-talk, a public WeChat account run by
former Caixin magazine editor Chang Hon-
gxiao, on March 31. He thinks official caps
on lending rates to curb excessive interest just
starve small businesses and the poor from ac-
cessing loans, rather than protecting them
from usury. It is unreasonable, he argues, to
impose an annual rate, as such high interest
rate loans for small businesses are mostly for
the short term and thus much more afford-
able than if calculated with annualised rates.
He added that small businesses normally
generate much higher returns than bigger
ones to cover the high cost of borrowing.
In addition, the high rates imposed by li-
censed lenders have also raised the question
of what is fair application of the law. In 2015,
a local court in Chengdu, Sichuan Province,
did not support a bank’s claim for charging
much higher than 24 percent interest on
an overdue credit card repayment. The rule
stressed equal treatment of lending contracts
either by banks or by private lending. How-
ever, rules like this remain more an exception
than the norm, and banks have not changed
their policies. Recently, a host of a China
Central Television law programme sued a
bank for the high fees it imposed on his late
credit card repayment.
A more diversified mainstream supply of
loans may help reduce usury, as has long been
advocated by economists, including Wang,
as well as policy makers, but the demand for
money lending will always be there, an insid-
er of the small loans industry, who asked for
anonymity, told ChinaReport. He said there
are always groups in any society who desper-
ately need money in an emergency but are
denied access to any mainstream financing.
He guessed that Su was out of the reach of a
much cheaper, licensed small loan company,
either because there was no such provider in
her underdeveloped county, or because her
credit was rated as too poor for a small loan
company to be willing to lend to her.
The latter possibility means that victims
like Su Yinxia do not always earn public sym-
pathy. Su is criticised by many online com-
mentators for irrational borrowing which
ruined her son’s life. Her creditworthiness
looked dubious due to her massive debts
before and after this loan and her failure to
comply with prior court rulings on debt re-
payment before the tragedy. Debt evasion
faces growing social resentment in China
today. Su was on the blacklist of dishonest
debtors set up by the Supreme People’s Court
of China in 2013 to address rampant debt
evasion. Debtors on this list are restricted
from some activities. For example, they can-
not buy high speed rail tickets.
Another reason for the lack of sympathy
to borrowers is the recent exposure of some
cases in which young university girls used
nude photos of themselves to borrow at on-
line peer-to-peer (P2P) lending platforms.
They used the money to buy things such as
electronics. These cases were dubbed by me-
dia as “naked IOUs.” On April 10, the China
Banking Regulatory Commission banned
P2P services to university students under 18
years old.
There is ongoing controversy over whether
deregulation really reduces high-interest lend-
ing. Research in the US has already shown
that payday lending boomed after the finan-
cial deregulation of the 1990s and raced to
the high end of rates where permitted, which
was contrary to what deregulation advocateshad expected. The chess game between the
business organisations and regulators in the
US has been underway ever since. One of the
focal issues is whether there should be a na-
tional cap for rates and what it should be. As
in Su’s case, like in the US, many short-term
high-interest loans turn out to be long-term
rollover traps, the exact reason why similar
lending products in both countries are la-
beled as “predatory” by many analysts and
regulators.Expectation and Exit
Whatever limits are imposed on debts,
there must be legal remedy and exit mecha-
nisms for people entangled in debt. In this
regard, there are rising calls for making a law
to regulate debt collection after the recent
tragedy in Shandong. Currently, companies
engaged in debt collection have to register
as providers of other services, mainly busi-
ness consultancies. But they publicly adver-
tise their debt collection services online, and
promise violence is not used. The most fre-
quently reported and advertised ways of call-
ing in debts are extortion, mainly by follow-
ing debtors and their families wherever they
go, or threatening to tell debtors’ bosses. In
the “naked IOU” cases, P2P operators threat-
ened the girls that their photos would be sent
to their parents and friends if they failed to
repay.
Professor Li Shuguang at the China Uni-
versity of Political Science and Law urged
the application of a bankruptcy law for in-
dividuals in 2002 when he drafted the law.
However, his suggestion was not adopted.
He and his colleagues proposed revising the
law or introducing an additional law on indi-
vidual bankruptcy during the annual sessions
of national legislators in recent years. In Su’s
case, as she owned the company as a natural
person shareholder, she can still file for per-
sonal bankruptcy as the debt is used for the
company’s operation.
More importantly, as Li explained to Chi-
naReport, things have changed over the years.
With or without high rates, personal debts
are very common in China now. Hundreds of
millions of Chinese people hold credit cards
and mortgages. According to the People’s
Bank of China, by the end of 2016, the totalGirls use nude photos as collateral for borrowing
from loan sharks