China steps up policing of citizens. (Photo by Manuel Joseph/ Pexels)

Since the pandemic, the second-largest economy in the world, China, has been facing a prolonged market slump and a real estate crisis which have thwarted its attempts at a robust economic rebound. However, while China navigates dynamic geopolitical landscapes, many of its citizens in debt face various limitations in their day-to-day activities.

According to The New York Times Journal, blacklisted from social services are 8.3 million people who struggle to repay their debts. These debtors have been ordered by courts to pay back the money, and the blacklist contains their personal information.

Debtors who are on the blacklist cannot book vacations or expensive hotels, buy properties, access higher insurance coverage, use toll roads or payment apps, or even board bullet trains or planes.

They are also barred from holding high-ranking positions in state-owned institutions. The South China Post reported in February that over 17 million people were prevented from buying plane tickets, and over 5.5 million were barred from purchasing bullet train tickets last year.

Exclusive Ringtone for Debtors

Furthermore, Chinese telecom companies are now assigning ringtones to blacklisted debtors. Anyone who calls a debtor will be warned by a recorded voice note about the person's financial crisis.

The warning also urges callers to get the defaulters to clear their outstanding balances. Blacklisted debtors have all their phone numbers playing the same recorded warning. A court or telecom firm can cancel this warning system only when all debt is repaid and recorded.

Debtor Details Available Publicly

China's supreme court maintains a public online database of blacklisted defaulters. Under each name, you can find their partially redacted government ID details, age, home cities, and debt records. This delinquency blacklist is different from the "social credit" system.

However, both are part of China's broader campaign to crack down on illegal activities, punish those found guilty, and reward those who abide.

High Consumption, Easy Credit Access, Lifting Debt Balances

Rising debt defaults are due to ignorance about loan products, easy access to credit, and fast-growing consumption compared to slower wage growth. The Bank of China had posted overdue unpaid credit of nearly $12.3 billion in Q1 2023, marking a 3.54% year-over-year increase.

The rising risks of a significant "debt-deflation spiral" could also exacerbate the financial vulnerabilities in households nationwide, potentially leading to more defaulters getting blacklisted.

Unlike in the US, carrying debt in China is not appreciated everywhere, and those who fail to repay it are sometimes called "laolai" or "deadbeat debtors." You may be unable to file bankruptcy to write off debts in China.

The government can take several measures, like taking control of your income as restitution, leaving you with only living expenses.

Social Credit System Roll Out

Meanwhile, the social credit system is a mandatory program built on the idea that "keeping trust is glorious and breaking trust is disgraceful."

It tracks people's movements and behavior to take appropriate actions and ranks them with social credits. People have been punished for loitering in the streets, spreading fake news, driving impaired, and even buying too many video games.

Rankings are determined by China's economic planning team, the National Development and Reform Commission, the People's Bank of China, and the mainland's court system. The social credit system can also be used for businesses and government organizations. The impact of the system may be felt most by financial firms as Beijing continues to crack down on financial fraud, cross-border money flow, offshore and insider trading, disinformation, and illegal fundraising.

"We believe the main policy purpose is to curb capital outflows, especially in the context of yuan depreciation pressure," said Shujin Chen, head of China financial and property research at Jefferies.

The system has already been tested on millions of people, and authorities are working to launch it across the country.