Consumer Bankruptcy with Chinese Characteristics?


Yuan trapDeng Xiaoping's famous description of the "new" Chinese development-oriented economy begs the question of what that system intends to do with the inevitable casualties of consumerism and economic development. What of the increasing number of people in danger of falling out (or who have already fallen out) of the new middle class? In contrast to 20 years of concentrated efforts to establish and reform a business insolvency regime, it looks at though China is still very far from introducing a relief mechanism for consumer insolvency. The simple basis for debtor-creditor law in China is Article 108 of the PRC General Principles of the Civil Law:  "Debts shall be paid" (also allowing for installment payments pursuant to "a ruling by a people's court").  I suspect the Chinese phrase long predates "pacta sunt servanda."

The lack of attention to consumer insolvency is not for lack of voices calling for such a system. A pioneering civil procedure scholar named Tang Weijian has been calling for the establishment of a personal bankruptcy system since at least 1995Another prominent bankruptcy expert in China, Cao Siyuan, has likewise urged the adoption of personal as well as business insolvency legislation. Leading Chinese bankruptcy scholar Wang Weiguo explains here why legislators have so far avoided tackling natural person insolvency head-on.

More recently, Ming Qi (齐明), a newer scholar whom I am proud to consider a close colleague, added his voice to the chorus. I recently discovered Ming's 2007 article offering a compelling normative framework for personal bankruptcy in China (论我国构建自然人破产制度的必要性 [On the necessity of introducing a bankruptcy system for natural persons in China]). I can read the article only with the help of Google translate (see here for a compelling and humorous explanation of why it will take me a while to develop the skill to read it on my own), but even the odd, broken translation shows the sophistication of thought in modern China on this topic. Ming focuses on the social instability that hopeless overindebtedness causes. He argues that a personal insolvency relief system would support a harmonious society and allow debtors to regain their human dignity. He is also sensitive to the stress that a flood of new cases would put on already insufficient judicial resources, though he cleverly observes that one major benefit of the collective insolvency framework is concentrating many potential creditor complaints in one forum and avoiding litigation, or at least resolving it more efficiently. In conclusion, however, he cautions that debtors should be expected to make maximal reasonable repayment to creditors to earn their relief. These are themes that reverberate throughout the normative literature in Europe and America.

Two points in Ming's paper intrigue me and accentuate the weaknesses in my own knowledge of China. First, Ming asserts that the community should lend a hand to deeply indebted individuals to help them to be economically reborn. I understand this "community help" as a metaphor for social legislation, but the literal notion of communities actually helping their members strikes me as a potential Chinese wrinkle in considering insolvency relief. I vaguely understand that Chinese families, in particular, stick much more closely together, even financially, so that if a member becomes overindebted, the family feels obliged to see that the debt is paid. Indeed, at least at one point in history (if not now), debts did not die with the debtor, but passed to his or her family in the ultimate "all-for-one-and-one-for-all" regime of liability. Maybe times have changed, but would this suggest that the Chinese definition of "overindebtedness" would take into account an entire family's capacity to pay? Think of how complicated that Form B22-A2 would be!

Second, Ming emphasizes a point that is too often ignored in commentary on the US, as well: China is huge and hugely diverse. Talking about the people, economy, and customs of "China" as if it were one monolothic unit is like the all-too-common practice of lumping the entire US together. People, economic conditions, and cultural practices in Mississippi are as different from those in New Hampshire, for example, as are differences between Spain and  Sweden. I suspect the same is true of distant provinces in China, though I just have no sense of the scope of the contrasts. Ming suggests these differences might be vast enough to warrant divergent standards for various regions. This would be quite a contrast to the insistence on universalism elsewhere (though see Daniel Austin's compelling challenge to the notion of universal laws of bankruptcy in the US).

So much to learn; so little time. Why does Chinese have to be so damned hard?!

Yuan in a mousetrap image courtesy of Shutterstock