Foreigners cannot dodge legal sanctions when defaulting on payments and loans in China

By Chen Ximeng Source:Global Times Published: 2018/1/12 17:16:24

Foreigners put on the national blacklist of debt defaulters have received punishments such as being restricted from leaving the country, receiving loans, flying or taking high-speed trains in China. Photo: VCG

When Sammy, a French who now lives in Zhongshan, Guangdong Province, heard about the recent case involving founder of technology company LeEco Jia Yueting, who was put on a national blacklist of debt defaulters, prohibiting him from flying, buying train tickets and so on, he felt excited that the blacklist law has taken effect.

Sammy has been in China for nearly 10 years and is currently the CEO of a trading and consulting company.

He recalled that seven years ago his ex-boss once had debt with some factories and fled China because he did not want to pay. One year after the incident, his ex-boss came back and had no repercussions for his actions.

"As debtors have been put under stringent regulations in recent years in China, I think such things will not happen now," said Sammy.

On December 19, the first case of a foreigner being punished by a court in Shanghai for failing to pay his employees was heard. The suspect was sentenced to five months of detention and given a fine of 40,000 yuan ($6,139), Xinhua reported in December.

"The case served to deter any employer - Chinese or foreign - from defaulting on salaries as the Chinese Spring Festival approaches," said Zhang Changming, the procuratorate prosecutor, in the report.

"Foreigners doing business in China must strictly obey the country's laws and regulations and can never dodge legal sanctions by saying that they do not have a full understanding of the local laws. Any law-breakers should be severely punished and put on a national blacklist," he said.

Since the national blacklist of debt defaulters was launched in 2013, a total of 7.49 million people have been put on the list, which also included foreigners, according to Xinhua in June.

In recent years, there are stricter regulations on debt defaulters as China is building a society with more trust.

People think that the government should educate people more on the blacklist system, as some foreigners are not aware they are on the list and employers do not know they can use it when looking for employees. Photo: VCG

Owing a debt

Xinhua reported that Hong Ki, a 65-year-old South Korean, was the owner of Mingxin Clothing Company in Shanghai.

On the eve of the Spring Festival in 2017, the employees lost contact with him, and he had returned to South Korea.

Hong owed the 158 employees in his company a total of 608,000 yuan for their January 2017 salaries. In August, he was captured by the police in Dalian, Liaoning Province.

During the hearing, Hong said the business was going well until last June when the number of orders declined and the capital chain broke down. 

"I did not want the employees to lose contact with me, but I lost my passport and phone, so I was unable to get in touch with them," said Hong at the hearing.

The prosecutor said Hong's intention to avoid paying the employees was quite obvious. He left China for six months and clearly knew that he owed money to his employees.

Although Hong pleaded guilty and paid back the salaries, the procuratorate still initiated a public prosecution against him, given that he consciously delayed paying wages, escaped and hid.

There are other cases of foreigners defaulting on debts and being punished.

Trying to fly from Shenyang, Liaoning to Tokyo, a Japanese entrepreneur was detained in the airport and banned from leaving the country in November 2015 for defaulting on rent and being put on the blacklist, the Shenyang Evening News reported.

On the way from the airport to the court, he contacted the Japanese embassy but was told that this case was out of the scope of the embassy. Finally, the debtor agreed on reconciliation and paid back the 100,000 yuan.

According to Chinese law, once put on the national blacklist of debt defaulters, including individual defaulters and the legal representatives and CEOs of companies that default, the individuals' names, ID numbers and the companies' names are shown on the website of the Supreme People's Court, and they are restricted from high-expenditure consumption such as flying, taking high-speed trains, staying at luxury hotels or enrolling their children at expensive private schools.

According to the Xinhua June report, the Supreme People's Court is using advanced information technology to increase penalties. So far, 7.28 million "discredited" people on the blacklist have been prohibited from buying plane tickets, 2.74 million from buying high-speed train tickets, 71,000 from being the legal representative or high executive of companies and 591,000 from applying for loans or credit cards at the Industrial and Commercial Bank of China.

It proves that the blacklist is effective. Over 1 million discredited people have voluntarily paid their debts under the pressure, according to the Supreme People's court.

Falling victim

Sammy's company has many unpaid bills from clients.

As part of their consulting, they create designs for companies in the Chinese market who want to have European branding.

Recently, his friend recommended a client. It was a small project of designing a logo and notice for some packaging. His company completed the work quickly and the next morning they sent over the sample product. However, by that afternoon, the client would not answer the phone and the line was always busy.

He later found that the client blocked him, used the logo and even registered it later on.

He recalled that when he called a lawyer, he was told very clearly to "forget it!"

"I still remember how he said it. A small amount of debt is not worth it because it would cost us more in energy and money for a lawyer fee than getting back the initial debt," he said.

"I think the debtor blacklist system is good in that we can check to see if someone is blacklisted or not. We will be less afraid of new, unknown clients," he said.

In December 2016, a case of teachers being defaulted on wages also aroused much attention.

According to a report from the Beijing Evening News in December 2016, United English, an English training company in Beijing, closed its two learning centers and disappeared overnight. Many foreign teachers had not been paid for months.

One teacher named Anton said since the Spring Festival, he had continuously been paid late.

Although the teachers were not satisfied, they did not leave because they had a work visa connected with the company. If they lost the job, they would get into trouble and not be able to stay in China.

They then received an open letter from the company which said that the company filed for bankruptcy liquidation and the company would be dissolved.

What to do?

Liao Zhen'gang, a lawyer at the Beijing-based Yingke Law Firm, told Metropolitan that in cases like Sammy's, some foreigners do not take legal action because they think it may take too much time and money, and if they lose, they might have to pay the other side's legal fees.

If they decide to take the debtor(s) to court, Liao said they need to document everything to build their case.

"They should have everything documented, including the bills, contracts, bank statements, emails, chat records and text messages, not verbal communication. The records on social media including WeChat are also counted," said Liao.

A staff with a social credit company in China who remains anonymous, told Metropolitan that the blacklist system is good, but the government should have more publicity on it among foreigners, since some people do not know that once they are put on the list, it is too late and that employers can use the list when they recruit employees or choose partners or clients.

Debbie Gow, who works in business strategy and development in Shanghai, has been in China for 13 years.

Gow thinks that when people hear about the big debtors, they think of corrupted people who are hiding money.

In that case, the strict policy is wonderful for holding those fraudulent people accountable, which is hugely important, she said.

However, Gow also sees the downside of the policy for people who have had an honest run of unfortunate business challenges that might have come about because of circumstances outside of their control such as a sudden death, family illness or drastic changes in business climate.

In circumstances like these, if the person cannot travel for business, how can they make the money to repay the debt?

She feels there needs to be a solid set of checks and balances set up to sort through the cheats and the honest people in a bad place.

Sammy also said compared to his home country France, the system is very different. When one is in debt and cannot pay, they will receive an official notice. If the debt is not paid in three months, the person will be banned from all banks.

"After that, it's very difficult to get a bank account or a loan as you are blacklisted," he said.

Gow feels that it's important for a government to have solid infrastructures in place to help people in debt no matter where they come from.

A system to investigate how the situation happened, if there is hidden money, helping to restructure a company to be profitable again with a repayment plan or to help sell off assets when there is no other way.

"While the public shaming and no-travel lists work, in the end, it's just a short-term solution and will lead to people finding ways to do things without penalty," she said.

Newspaper headline: The debt blacklist


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