Chinese debtors could face jail time for "malicious intent" in racking up large credit card bills and not paying them. The penalties could also extend to Hong Kong residents using credit cards issued by mainland banks in China or in Hong Kong. While the law already existed, the Supreme People’s Court and the Supreme People’s Procuratorate yesterday issued a joint statement defining the regulation for the first time. If debts of RMB10,000 or more incurred with malicious intent are not paid three months after the second warning, cardholders will face fines upwards of RMB20,000 or up to life imprisonment. Convictions of malicious intent have already been issued in 33 cases in Shenzhen in the first eight months of this year, but the first debtor was sentenced last year. Xiao Wang, a 22-year-old Beijinger, used his card to purchase an expensive cell phone and make a cash withdrawal of RMB5,000 in September 2006. Shortly thereafter, he lost his job and did not pay his bill. The Beijing Xicheng District Court sentenced him to a 6-month jail term, suspended for one year, and an RMB20,000 penalty – the full amount of the charges on the card plus a fine of RMB9,000.
China isn’t the only country that sentences its deadbeats to prison. The United Arab Emirates does so, and you can face jail time in the US if you default on loans you have the proven means to repay (you can go to jail for not paying child support even if you don’t have the funds). Without a developed bankruptcy law, China has had to get creative in getting credit card users, particularly the young and immoderate generation of new consumers, to pay mounting credit card debt. By September 2009, unpaid credit card debt had reached US$1 billion. Just like in the US, where out-of-control credit card debt exacerbates other economic stressors, rising credit card debt in China is worrisome for authorities. Chinese credit card companies, over-eager to cash in on the lucrative market, are offering cards to young people who don’t make enough money to pay back the debt they rack up on impulsive purchases, often enticing them with promotional gifts.
Ironically, the penalties have been outlined at the same time Beijing is encouraging domestic consumption to boost the domestic economy. While government measures, including subsidies on cars and home appliances, have been successful, the distinction between paying with cash and paying with your future should be clarified, and not just the penalty.