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The Chinese government is tightening the noose on debt defaulters, imposing stringent penalties that include restrictions on high-speed rail travel and luxury accommodations. This move is part of a broader crackdown on unpaid bills.
What Happened: Beijing is resorting to severe actions against those who fail to settle their debts. Measures include salary seizures, barring from government jobs, and limiting access to high-speed trains and air travel. Some individuals are even barred from purchasing expensive insurance policies or going on vacation, according to The Wall Street Journal.
The government’s delinquency blacklist has grown by nearly 50% since late 2019, now encompassing 8.3 million individuals. Courts can place people on this list if they fail to fulfill judgments against them or are deemed uncooperative with legal proceedings.
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Unlike the U.S., China does not permit most people to declare bankruptcy to write off bad debts. This policy has drawn criticism from Chinese scholars as unfair. Household debt in the country has surged by 50% in the past five years, reaching approximately $11 trillion.
The threat of punishment for falling behind on debt is causing many Chinese families to become more conservative with their money. This is impacting consumer spending and causing Western companies like Apple Inc. (NASDAQ:AAPL), Estee Lauder Companies (NYSE:EL) and General Motors (NYSE:GM) to report weaker sales in China, according to the report.
Why It Matters: The Chinese government’s approach to handling the country’s debt crisis has been a subject of international concern. Billionaire investor Ray Dalio warned that China could face a “lost decade” if it does not address its debt issues.
This caution was issued against the backdrop of a multifaceted economic environment, notably with Fitch Ratings recently downgrading China’s credit outlook from stable to negative.
The debt crisis was further exacerbated by the collapse of China’s real estate market, which was compared to a “U.S. financial crisis on steroids.”
In February, this crisis led to a $7 trillion downturn, prompting President Xi Jinping to seek measures to stabilize the market and restore investor confidence.
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