China court approves personal bankruptcy ruling that could pave the way for further debt cases

A court in Wenzhou, Zhejiang province, says a local man only has to repay 1.5 per cent of his 2.14 million yuan (US$300,000) of debt to creditors

China is in the process of establishing personal bankruptcy rules amid a surge in the household debt-to-gross domestic product ratio

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At the end of June, China had 14.43 million people who were listed by the courts as “persons who have lost credibility”, the equivalent of just over 1 per cent of the total population, official data showed. Most were placed on the blacklist due to unpaid debts. Photo: Bloomberg

Published: 4:00pm, 10 Oct 2019Updated: 10:09pm, 10 Oct 2019

A local Chinese court has approved the first-ever personal bankruptcy agreement in China’s history, setting a precedent that could spread across the country as household debt levels rise amid the slowing economy.

The court in Wenzhou, Zhejiang province, the cradle of China’s private-sector economy, ruled that a local man surnamed Cai only has to repay 1.5 per cent of his 2.14 million yuan (US$300,000) of debt, the equivalent of 32,000 yuan (US$4,480) over the next 18 months.

It did not specify how Cai, who has a monthly household income of around 8,000 yuan (US$1,120), amassed the debt.

“He has a 1 per cent equity stake in a machine tool company, and his paid-in capital to the company is 5,800 yuan. He has a damaged motorcycle and a very small amount of [bank] deposits,” the local official newspaper, the Wenzhou Daily, reported, citing the court ruling. “In addition, his wife has been suffering from high blood pressure and kidney disease for many years, resulting in a huge medical bill, and his child is still in college. The whole family’s income just couldn’t make ends meet and he is clearly unable to repay the huge debts.”

The whole family’s income just couldn’t make ends meet and he is clearly unable to repay the huge debts

Wenzhou Daily

The landmark case took place at a time when the government is trying to set up a nationwide legal framework to handle a growing number of individuals who are unable to repay their debts.

At the end of June, China had 14.43 million people who were listed by the courts as “persons who have lost credibility”, the equivalent of just over 1 per cent of the total population, official data showed, with most placed on the blacklist due to unpaid debts.

Cai can resume his credible social status three years after paying back the agreed amount, although until then, he is not allowed to travel in business or first class on the high-speed railway network, serve as legal representative for any business entity, while he must seek special permission if he wants to travel abroad, the court ruled.