China penalty of the day

by on February 16, 2017 at 12:40 am in Current Affairs, Law, Political Science, Web/Tech | Permalink

China has banned almost 7m people from taking flights and high-speed trains over the past four years as a penalty for not repaying their debts, the country’s Supreme Court has announced.

The penalty system is part of efforts to build a nationwide “social credit” system that will eventually rate every Chinese citizen by collecting big data on financial, legal or social misdeeds. The debtors’ travel ban has been touted as an important first step for building the structural links needed to implement such a comprehensive monitoring programme.

“We have signed a memorandum . . . [with over] 44 government departments in order to limit ‘discredited’ people on multiple levels,” Meng Xiang, head of the executive department of the Supreme Court, told state media on Wednesday.

…In addition to not paying debts on time, one can also be blacklisted for lying in court, hiding one’s assets and a host of other crimes. The Supreme Court said on Tuesday it was working on adding new forms of penalties.

Here is the FT story by Yuan Yang.  Keep in mind that the country does not have a real personal bankruptcy law, nor well-developed credit institution penalties, so this is viewed as one of the few options available.

1 prior_test2 February 16, 2017 at 1:49 am

So, the Chinese are just taking a capitalist approach in improving on the American no-fly model of screening everyone wishing to take long distance transportation?

Those sneaky Communists.

2 So Much For Subtlety February 16, 2017 at 2:11 am

The small petty provincial minds of the Left are often a sight to behold. You have to be seriously unaware of the rest of the world to think that there is anything remotely comparable to this in the West.

I also note that setting a system of bankruptcy laws is a hell of a lot easier than this. So the OP seems to be verging on justification without reason. They are not doing this incredibly complex Orwellian scheme because they can’t set of penalties for credit default. They are doing it because they think incredibly complex Orwellian schemes are good things. They read 1984 as a textbook, not a warning.

3 prior_test2 February 16, 2017 at 2:45 am

‘You have to be seriously unaware of the rest of the world to think that there is anything remotely comparable to this in the West.’

You really haven’t been paying attention, have you?

‘The No Fly List is a watch list of people the government has designated as known or suspected terrorists and prohibited from flying to and from the United States and over U.S. airspace. It is a subset of a larger watch list, called the Terrorist Screening Database, which is operated by the FBI’s Terrorist Screening Center.

Because of the extreme secrecy surrounding the No Fly List, people generally only discover that they are on it when they are denied boarding on a flight – often very publicly, at the airport. The public does not know how many people are on the No Fly List, and the criteria for inclusion are so broad and vague that they inevitably ensnare innocent people engaged in First Amendment-protected speech, activity, or association. The process the government has established for people on the No Fly List to challenge their blacklisting is grossly insufficient and violates the U.S. Constitution’s due process guarantee. The ACLU and its affiliates in Oregon, Southern California, Northern California, and New Mexico are challenging that process in court.’ https://www.aclu.org/know-your-rights/what-do-if-you-think-youre-no-fly-list

Thankfully, this protects the U.S. is protected against such terrorists as Cat Stevens – ‘A passenger plane carrying singer Cat Stevens to Washington was diverted to another city 600 miles away yesterday so the musician could be escorted off the flight by FBI agents and sent back to Britain.

The Transportation Security Administration (TSA) said the singer, who converted to Islam and changed his name to Yusuf Islam, was denied access to the US “on national security grounds”.

Flight 919 from London to Washington was diverted to Bangor International Airport in Maine, after US security officials were told Mr Islam was aboard.

He had been allowed to board the flight after United Airlines officials initially failed to spot his name on a watch list, the TSA said. The plane, carrying about 250 passengers, was held at Bangor for more than three hours before being allowed to continue its journey to Washington.’ https://www.theguardian.com/world/2004/sep/22/usa

Of course, that happened 12 years ago – I’m confident that names are no longer so casually overlooked. For example, the last time I flew to the U.S. from Frankfurt, the very first people I presented my American passport to were American government employees with their own briefcase enclosed laptops – only after that check was I allowed to actually to go into the United check-in counter area. So yes, I am quite confident that anyone who has flown from Frankfurt to the U.S. is fully familiar with something like what the Chinese are doing. I’m even confident in generalizing that experience to just about any international airport with a significant volume of flights to the U.S., not just in the West, but in the rest of the world too. Assuming, of course, that the local government agrees to have American government employees screen their citizens before boarding a flight.

4 Vivian Darkbloom February 16, 2017 at 3:03 am

This seems to parrot what Cowen wrote:

“Keep in mind that the country does not have a real personal bankruptcy law, nor well-developed credit institution penalties, so this is viewed as one of the few options available.”

Options? You mean like an alternative? Although I don’t know what “well-developed credit institution penalties” is supposed to mean in this context, I struggle to see how personal bankruptcy law is an “alternative” to the Chinese debtor “penalty” described here. You mean personal bankruptcy law encourages people to repay their debts? I seriously doubt that. Along with reducing the supply of credit, increasing increasing the demand for credit and therefore interest rates (even for those who do repay their loans), I strongly suspect personal bankruptcy law has the opposite effect on voluntary debt repayment and overall debt repayment.

Eg:

http://econweb.ucsd.edu/~miwhite/florence9.pdf

5 Vivian Darkbloom February 16, 2017 at 3:05 am

As far as a *creditor tool*, just what percent of US personal bankruptcy cases are “involuntary” (i.e., initiated by creditors)?

Try about one-tenth of one percent:

https://www.iiiglobal.org/sites/default/files/19036439v1%20-%20Involuntary%20Bankruptcy%20As%20Debt%20Collection%20(Jason%20Kilborn).PDF

6 rayward February 16, 2017 at 12:00 pm

I interpreted Cowen’s comment to mean that China is using this as a monetary contraction device (or credit allocation device), discouraging borrowing by those most likely to default. We have similar devices in America, such as laws regulating payday lenders. As an aside, America’s personal bankruptcy laws might as well not exist for the typical debtor since the largest personal loan is nondischargeable.

7 Vivian Darkbloom February 16, 2017 at 12:35 pm

1. “I interpreted Cowen’s comment to mean that China is using this as a monetary contraction device (or credit allocation device), discouraging borrowing by those most likely to default.”

That’s part of my point—personal bankruptcy law does *not* discourage borrowing by those most likely to default (or encourage re-payment of borrowing that is successfully obtained). It, in fact, encourages it (see the NBER paper I referenced). It may discourage *lending*, but certainly not borrowing. Even if this is part of the hidden meaning of the original post, it fails to be an “alternative” to penalising delinquent borrowers.

2. If you are referring to the largest personal loan being education loans, it is “fake news” (I try to stay abreast of fashion) that they are not dischargeable. They are subject to a different standard for discharge, but that is far from making them “non-dischargeable”.

8 Rich Berger February 16, 2017 at 8:11 am

And still testy rambles on, with his incessant lecturing.

9 Robert M February 16, 2017 at 1:35 pm

There is now an official petition:

https://www.change.org/p/tyler-cowen-tyler-cowen-please-ban-the-commenter-known-as-prior-approval

Signing is easy, all you need is a name and a fake email and address.

10 Sam The Sham February 16, 2017 at 2:55 pm

Prior approval is ok. Banning commentors is stupid. Even Harding and Politics of Cruelty should be allowed to spew their nonsense. Hell, they let me post, usually.

11 msgkings February 16, 2017 at 5:46 pm

+1

12 HamasDeservesCitizenship February 16, 2017 at 1:49 am

Okay, but have they elected Hitler or Trump? No, that was white people.

13 Axa February 16, 2017 at 2:29 am

Debts, the problem is solved by collecting money not by slapping people in the hand. I would have thought wage garnishment and bank account levies would be easier in authoritarian China. There might be a reason why they don’t do bank levies: it goes against the interest of people making the rules. Rich people not paying debts laughs at a plane travel ban, they would be really scared of bank levies. In one word: corruption.

14 Ricardo February 16, 2017 at 3:20 am

I think Chinese courts already have the ability to garnish wages and freeze accounts. From cursory googling, it seems some people are able to evade traditional debt collection efforts so measures like these are designed to make life increasingly unpleasant for deadbeats. These efforts seem analogous to what U.S. states do to people who are behind on child support.

15 prior_test2 February 16, 2017 at 3:28 am

Very good example – I had focussed too much on the control mechanism of denying people access to long distance transportation, with its parallel to America’s No Fly List.

But the legal framework surrounding child support more closely resembles the sort of approach the Chinese take. Here is an example concerning the Commonwealth of Virginia – ‘In Virginia, child support enforcement services are provided by the local child support enforcement agency (DCSE). Payments are made to families by direct deposit or via mail.

The DCSE can enforce a support order by:

Withholding income from a parent’s wages, social security, unemployment, worker’s compensation or veterans disability compensation;

Placing liens on a parent’s real or personal property;

Garnishing state and federal tax refunds;

Withhold child support from a paycheck or from unemployment benefits;

Garnish worker’s compensation benefits;

Suspending driving, occupational, sporting and/or recreational licenses (If behind 90 days or more in payments);

Credit bureau reports;

Bench warrants for arrest;

Passport Denial

File contempt of court actions, which could result in a jail sentence.’ http://statelaws.findlaw.com/virginia-law/virginia-child-support-enforcement.html

16 Axa February 16, 2017 at 6:55 am

Thanks Ricardo. I see, the FT article is a poorly done, no context is offered. This one is much better, you’re right courts can enforce collecting procedures: http://www.reuters.com/article/us-china-debt-shaming-idUSKCN0ZZ0BS

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

This is so 2008: If someones owes the bank 4K USD and don’t pay, poor debtor. If someone owes 400K and doesn’t pay to the bank, poor bank. The word “collateral” is absent in the FT and the Reuters articles. If bad loans keep rising and traditional debt collecting procedures are not working, the travel ban is the smallest problem over there. Who loans 400K without collateral? I’m curious to know how much of China’s bad loan portfolio corresponds to unsecured loans.

Unsecured loans is the topic here, shaming debtors in arrears is just an unintended cry for help.

17 BC February 16, 2017 at 5:07 am

In case anyone doubted before that eliminating cash, without some other means for anonymous economic transactions, was a threat to liberty…

One question is why the government feels the need to enforce debt repayment in the first place. I wouldn’t think that bankruptcy law nor “credit institution penalties” were the missing institutions. Rather, reliable credit rating, e.g., FICO, is the sufficient institution for credit markets. Borrowers have an interest in convincing lenders of their creditworthiness so that lenders will lend to them in the first place. That means that lenders and borrowers shouldn’t need government to enforce debt repayment — they should be able to find acceptable repayment enforcement terms on their own: collateral, reliance on credit history, etc. Borrowers might even voluntarily agree ahead of time to submit to government-enforced travel ban in the event of default to get lenders to agree to lend. It shouldn’t really be necessary, though, for government to require that all borrowers agree to this enforcement mechanism. As one quote in the article suggests, this measure isn’t about creditworthiness: “Creditworthiness, at any rate, is not the chief goal of credit records as far as the government is concerned….The credit system is seen as a broad government tool to achieve a range of normative goals.”

18 Ricardo February 16, 2017 at 6:10 am

“That means that lenders and borrowers shouldn’t need government to enforce debt repayment…”

It’s not clear what you mean. If two parties have a contract and one reneges in a way that inflicts damage on the other party, that person can sue for damages and can seek assistance from the sheriff or marshall in collecting on or enforcing the court’s judgment against the other party. This is an ancient idea and one that facilitates honest business. A debt is just a sub-species of contractual obligations and it’s not clear why we should abandon the idea that courts have a role to play in helping creditors collect on debts and that modest levels of state coercion should be used to enforce court orders when they concern debt collection.

19 BC February 16, 2017 at 11:13 am

There is no global government to enforce US Govt repayment of debt yet lenders continue to lend to the US govt at the lowest rates. The borrowers themselves have reason to agree to enforcement mechanisms, and to establish creditworthiness more generally, so that lenders will lend to them in the first place.

20 Captain Obvious February 16, 2017 at 6:28 am

I wonder how many of these 7m could afford to use high speed rail and or a flight ricket in the first place… I suspect not that many.

21 Jay February 16, 2017 at 8:05 am

And it always amazes me when the “compassionate” people want government to force others to pay for medical bills that individuals cannot afford, the same logic is not extended to transportation such as airfare.
Freedom of unlimited movement serviced by airline companies is just about on par with freedom of unlimited visits to doctor offices. Think of people with family members that live more than 500 miles away.

22 Cooper February 16, 2017 at 2:37 pm

>Think of people with family members that live more than 500 miles away.

Skype?

23 Harun February 16, 2017 at 2:22 pm

China has a lot of rich people who are scumbags who didn’t pay their bills.

If they are really poor, and can’t afford it, then it doesn’t hurt them.

24 Mark Thorson February 16, 2017 at 10:41 am

Isn’t there another problem that so many Chinese share the same names? I vaguely remember hearing that something like five family names account for a majority of the population.

25 Viking February 16, 2017 at 11:57 am

The problem with the high speed train ban is that the ID check happens while picking up the tickets, not when entering the secured area. Worst case, travel by train in China becomes like travel by plane in USA.

Of course, one could throw the book at folks that share tickets, but that sounds like something beyond what China typically does.

26 Harun February 16, 2017 at 2:20 pm

This would allow for some ingenious uses.

Take prospective son-in-law on trip and insist on going by high speed rail.

Offer trip by high speed rail to all employees.

27 Bunker Brown February 16, 2017 at 3:32 pm

This is the concept of ‘Civil Death’

28 Dan Lavatan February 16, 2017 at 3:48 pm

Right, the end goal is to only supply tickets to people rated 4 stars or more, with people getting at least 4.5 starts allowed a free upgrade.

29 Deckard February 16, 2017 at 8:09 pm

Missing the point by just looking at the debt part, folks:

“The penalty system is part of efforts to build a nationwide “social credit” system that will eventually rate every Chinese citizen by collecting big data on financial, legal or social misdeeds.”

“Social credit system” that allows the government to penalize citizens for perceived social misdeeds. Huge coercive tool.

30 Troll me February 18, 2017 at 7:40 pm

Facebook holds a US patent on precisely what they are dong in China.

Comments on this entry are closed.

Previous post:

Next post: