Shame on you! China uses public billboards to expose runaway debtors

[July 19, 2016]  By Engen Tham

SHANGHAI (Reuters) - Above throngs of busy commuters at a Shanghai railway station, four large billboards - some sandwiched between screens flashing train times - were lit up with the name of the head of a mid-sized industrial products maker.

But he was not promoting his company or its goods.

The Shanghai Railway Transportation Court put his name in lights earlier this month because his company failed to pay a 2.9 million yuan ($432,945) debt. A separate court in the eastern Zhejiang province issued a freezing order over his company’s assets two years ago for money owed to China Construction Bank.

As growth slows, struggling borrowers are finding it harder to repay their loans, pushing China banks' official soured debt above $299 billion at the end of May, though analysts say they estimate the true level is much higher.

To fight this rising tide, Chinese courts have ramped up their use of shaming tactics, underlining the failure of other methods of making debtors pay.

Zhou Qiang, president of China's Supreme People's Court, declared in March that debt avoidance was a major problem and he said the court would give those who tried to avoid judgments against them "nowhere to hide," according to a newspaper produced by the court, China's highest. It would do that by collecting information on absconding debtors, holding press conferences to gain publicity, and restricting access to credit among other methods, he said.

For 10 days ending last Friday, the names, ID numbers, addresses, case numbers and amounts owed by 20 people, either individual debtors or the heads of companies, were flashed across screens at the two main Shanghai railway stations at 10 minute intervals. In some cases there were also photos of the miscreants.

The debtors displayed on the board sometimes owe modest amounts, with one shamed for failing to pay just 1,984.1 yuan.

"It is an important initiative to deter dishonest debtors", said the Shanghai Railway Transport Court in a press release sent to Reuters.

Some of the people featured have changed their phone numbers, addresses and disappeared, said the release, adding that the public can call in with clues to help the authorities track down the runaway debtors.

Normal methods of enforcement in China include the freezing and forced sale of assets, among other measures. They are not working.

"There are too many cases, too few judges, each judge has to handle lots of cases in a year," said Wu Zhendong, a financial services lawyer from King & Wood Mallesons, explaining why enforcing debt judgments are so tough.

A decree issued by the State Administration for Industry and Commerce at the end of last year set out the circumstances under which a company can be publicly shamed.

The decree expands upon 2013 Chinese Supreme Court rules that say dishonest debtors' details can be published in newspapers, on the radio, television and the internet.

LACK OF PUBLIC RESPONSE

While courts outside China's financial hub have adopted this tactic before, the judiciary in Shanghai has only this year taken to shaming with gusto.

It doesn't always resonate with the public.

People standing on escalators pass a electronic screen showing information of runaway debtors at Shanghai railway station in Shanghai, China, July 15, 2016. REUTERS/Aly Song

In May, Shanghai Putuo People's Court plastered the details of 76 debtors on electric billboards on the outside of five popular shopping malls, said a spokesman at the court. However, it received no public response, such as tips about the whereabouts of the debtors, he said.

Neither Shanghai court offered a reward for information on a missing debtor.

More than 3.4 million dishonest debtors have had their information released to the public, according to an announcement in the Supreme People's Court's paper, adding that 10 percent of those shamed "satisfied their obligations."

Public shaming is not novel in China and was used as a way to punish criminal behavior in ancient times, according to Wu Yanhong, a professor of history in Zhejiang University.

Offenders would have different weights of wooden clamps placed around their necks to publicize the crime and warn off others, said Wu.

When Mao Zedong declared a class war, known as the Cultural Revolution, in 1966-76, guards held "struggle sessions" in which people accused of capitalist thoughts were verbally and physically abused in public.

The posting of personal information does not necessarily contravene the right to privacy, said Wu.

"The premise of having the right of privacy is to fulfill your corresponding obligations," he added.

NO HOLIDAYS, NO DECORATING

To combat debtors who refuse to pay, Chinese courts are also increasingly using a 2014 law which allows judges to prohibit a person who avoids paying a debt from going on vacation, sending their children to private school, doing expensive renovations and flying or taking the train, lawyers said.

Around 782,000 dishonest debtors have been prohibited from taking the train, while 3.9 million have been banned from flying since the law came into effect, according to an announcement in the supreme court paper. Often passengers have to provide an ID card or passport number to buy a rail or airline ticket in China.

"I've been sued, the court wants me to repay, but I have no money. The government says I can't get on a high-speed rail, I can't get on a plane," said a debtor with the surname Zhang who did not want to disclose his full name because of the sensitivity of the issue.

Zhang claims he cannot repay because he has been defrauded by a third-party.

"My father is 80 years old, but I can't go back to visit him for Chinese New Year because I'll be caught," he said.

(Additional reporting by Shanghai newsroom; Editing by Martin Howell)

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