Pay Up, Deadbeats! Why China’s Wuhan is naming and shaming its debtors

A Chinese city is trying a novel approach to collect its debts – by publicly naming and shaming companies in newspapers. The city of Wuhan – the epicentre of the COVID-19 pandemic –  on Friday named 259 firms that had outstanding dues and asked them to pay up. The move comes in the backdrop of China’s local governments facing a cash crunch. Let’s take a closer look: What happened? According to Bloomberg, Wuhan’s finance bureau published a list of 259 companies that owe more than $42.4 million since December 2018 in the Yangtze River Daily. Bloomberg quoted the Wuhan Municipal Bureau of Finance as saying in the page-long article that those named need to “immediately perform the relevant statutory debt repayment obligations.”

A car manufacturer with outstanding dues of 23.5 million yuan is Wuhan’s biggest debtor.

The public notice also lists some district financial bureaus as well as several state-affiliated outfits including the Securities Times, as per Bloomberg. However, Yicai reported that the borrowed funds ranged from just over 10,000 yuan to more than 10 million yuan ($1.45 million), with the total amount exceeding 100 million yuan ($14.47 million). Yicai cited a debt collection list jointly published by the regulator and Wuhan Yangtze River Asset Management Co. Debtors include district finance bureaus, scientific research units, state-owned enterprises, units of listed companies as well as private firms, according to a screenshot of the list shared by Yicai. The debtors, their corresponding guarantors and successors were requested to repay their debts to the asset management firm immediately after 26 May, Yicai reported. State-owned Wuhan Yangtze River Asset Management Co is a professional platform responsible for the disposal of various non-performing assets in the central city, according to its official website. It is delegated to recover the above-mentioned borrowed funds for the government to the maximum extent, Yicai reported. Why is China doing this? The move comes in the backdrop of China’s local governments facing a cash crunch. Like most places in China, Wuhan government’s revenue has taken a big hit in recent years weighed down by COVID, a faltering economy and a prolonged property crash. The municipal government’s revenue slid to 50.77 billion yuan in the year’s first quarter – an 8.5 per cent decline over the same period the previous year. CNN reported that the finance bureau said it was unsuccessful in collecting the debts and was offering rewards to anyone able to provide useful information about the debtors’ financial assets. Chinese leader Xi Jinping’s zero-Covid campaign has exhausted the budgets of many cities and provinces, after they spent billions of dollars on frequent Covid lockdowns, mass testing and quarantine centres before last December’s policy U-turn. According to CNN Business, a real estate crash has exacerbated the problem, as local governments rely heavily on land sale revenues. “The government was relying on rapid GDP growth and soaring land prices to service its debt,” Cheng Juelu, a Shanghai-based economist and expert on China’s local government debt, told Al Jazeera. “However, the pandemic and the real estate market situation have turned those assumptions on their head.” Al Jazeera quoted the National Bureau of Statistics as saying that barring Shanghai, every one of China’s 31 provinces and municipalities reported fiscal deficits in 2022. [caption id=“attachment_12667542” align=“alignnone” width=“640”] A car manufacturer with outstanding dues of 23.5 million yuan is Wuhan’s biggest debtor. Reuters[/caption] “The Chinese government’s ability to control the situation remains in doubt,” Cheng said. “The debt problem has been growing for years, and while the government’s measures may provide some temporary relief, they do not address the root causes of the problem.” Hu Mingdan, a civil servant in eastern China, told Al Jazeera that her and her colleagues’ salaries were delayed for more than three months in the first time in over a decade. “… it was hard because we have families to feed,” Hu, from Nanchang, Jiangxi province, told the outlet.

“This was unimaginable before.”

Shi Zhengwen, a professor at China University of Political Science and Law, told Bloomberg such an action is exceedingly rare. Shi said this move “reflects the current challenges for local government finances, as debt collection is not as urgent when funds are abundant,” said Shi. Shi added that China’s finance ministry has been calling for belt-tightening and this action may be the local government indicating that it is paying close attention to the diktat. Wuhan’s announcement came just days after the official financing arms of Kunming, the capital of Yunnan province, struggled to raise enough money to pay what they owed their bondholders. Yunnan is one of the most indebted provinces in the country, with its outstanding debt to fiscal income ratio hitting more than 1,000 per cent last year, CNN Business reported.

Wuhan and Yunnan aren’t alone.

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According to CNN Business, Guizhou, one of China’s poorest provinces, publicly admitted defeat in April in trying to sort out its finances and appealed to Beijing for help to try to avoid default. Al Jazeera quoted the Centre for Development Research as calling Guizhou’s debt a “significant and urgent issue” and saying it had become “unusually difficult” to pay off. CNN Business reported that some cities have already slashed medical benefits to seniors in view of tightening budget – which has sparked protests. Meanwhile, other vital services remain at risk. According to Al Jazeera, public schools are being sold, contracts with private firms being rolled back and pensions are being cut. Analysts say China’s outstanding government debts surpassed 123 trillion yuan ($18 trillion) last year, of which nearly $10 trillion is so-called “hidden debt” owed by risky local government financing platforms. With inputs from agencies  Read all the  Latest News,  Trending News,  Cricket News,  Bollywood News, India News and  Entertainment News here. Follow us on  Facebook,  Twitter and  Instagram.