Is Chasing Deadbeat Debtors “Picking Quarrels”?

Provincial prosecutors in Guizhou have set up a special investigative team to look into the case of a female entrepreneur who, along with members of her legal team, was detained and accused of “picking quarrels and provoking trouble” simply for attempting to recoup payment from a local government that had failed to pay the woman’s company for services rendered.

The case, which has created an enormous backlash on Chinese social media, shines a spotlight on a number of thorny political and fiscal issues, including local government corruption, excessive local government debt, irresponsible infrastructure spending, and the “criminalization of creditors”—that is, using the machinery of state to intimidate legitimate creditors, often by charging them with the reviled pocket crime of “picking quarrels and provoking trouble.

The story first came to the attention of the public through an investigative piece published on WeChat by the Beijing-based China Business Journal. That article is no longer visible on WeChat, and searching for it on WeChat yields the message: “This content has been deleted by the publisher.” It has also been deleted from the NetEase News platform. CDT Chinese editors have archived and republished the original Chinese article in full.

The Wall Street Journal’s Chun Han Wong provided some background into the case, its ramifications, and the public furor it touched off:

The controversy erupted […] after a state-run newspaper published a report […] saying that Ma Yijiayi, a construction contractor, spent years waging legal battles to press claims against officials in Shuicheng, a district of Guizhou province, only for local authorities to take her and her lawyers into custody late last year for allegedly disrupting public order.

Private entrepreneurs, lawyers and state-news outlets alike have weighed in, airing suspicions that district officials were trying to use criminal proceedings to fend off [creditors] and alleviate financial pressures. 

[…] In recent years, Ma’s construction firm secured court orders to recoup some owed payments, while getting sued over arrears owed to vendors, according to court documents seen by The Wall Street Journal.

According to China Business Journal, Shuicheng officials offered Ma in November a lump-sum payment of 12 million yuan to settle the dispute despite owing about 220 million yuan in project payments. Ma rejected the offer, and soon after, local police detained her and her lawyers, the newspaper said.

[…] On social media, some users and state-media commentators said they weren’t persuaded by the statement, and called on Shuicheng authorities to be more transparent.

“Is there an effort to ‘use criminal punishment to resolve debt?’ Are there hidden secrets behind the scenes?” said Top News Express, a social-media platform affiliated with China News Service, a state-run news agency. “The authorities must provide a more detailed explanation.” [Source]

Writing for the South China Morning Post, Mia Nulimaimaiti described how Ma Yijiayi’s case is emblematic of the deeper problem of local government debt and the threats it poses to China’s overall financial stability:

Analysts say Ma’s story vividly illustrates how the central government has its hands full in trying to deal with what has seemingly become an insurmountable mountain of debt among local-level governments – with 40.7 trillion yuan confirmed, and likely more implicit debt hidden in financing vehicles, state-owned enterprises and other entities.

[…] “The incident is not only the tip of the iceberg of the local financial and economic crises in Guizhou, it is likewise a serious problem facing many provinces” in central and western parts of China, said Wang Mingyuan, a researcher with the Beijing Reform and Development Commission, in an article by finance and business magazine Caixin on Wednesday.

“If we don’t accelerate a solution to the problem of high local debt, soon we’ll see more businesses being dragged down and employees being owed wages,” he warned. [Source]

CDT editors have archived a number of articles related to Ma’s case and the retaliatory tactics taken against her and her lawyers by the Liupanshui and Shuicheng local governments. In addition to the original China Business Journal report that was taken offline, an article titled “Local Governments and Local Entrepreneurs, Both Saddled with Debt, Are Locking Horns” by Ma Jiangbo, former senior editor at the Guangzhou-based Southern Weekly, was deleted after appearing on Sina Finance. The article explored the practice of local state-owned firms subcontracting infrastructure and development projects to local private firms—for a certain percentage of the deal, of course:

Anyone with a discerning eye knows that there are often shady transactions taking place behind the scenes of these highly leveraged infrastructure projects by city and county governments.

Sometimes, when a general contractor takes over such a project, they can earn 10 to 20 percent [of the value of the project] without doing anything, simply by subcontracting it out to someone else.

Financing intermediaries also stand to profit from these transactions. In the past, their typical take was four to five percent [of the value of a project], but higher percentages are not unheard of.

[…] In the process, local governments chalked up extraordinary development benchmarks, well-connected locals earned kickbacks, and local entrepreneurs raked in profits.

That is, until the fiscal taps were abruptly turned off, and what had been a sumptuous feast turned into a big pile of nothing.

[…] Thus it is inevitable that local governments and local entrepreneurs, both heavily saddled with debt, will increasingly lock horns. [Chinese]

A WeChat article by Wang Qingfeng, who blogs about economic and social issues, posed the question, “Who Will Foot the Bill for the ‘Myth’ of Guizhou?” The author described the rise of Guizhou from a poor backwater to a province boasting rapid GDP growth, ambitious infrastructure projects, a maze of new expressways, and tourism campaigns highlighting Guizhou’s famous (and pricey) Maotai brand sorghum whiskey. But in the process of this myth-making, Guizhou racked up worrisome levels of debt. Wang also mentions the role of Li Zaiyong, former Communist Party secretary of Guiyang, in driving the city of Liupanshui to the brink of bankruptcy due to profligate spending during his tenure as Liupanshui’s party chief from 2013 to 2017. (Li Zaiyong was later investigated and stripped of his party and official positions.)

With unsustainable levels of large-scale investment and debt, Guizhou’s economy has entered a period of adjustment. Starting in 2022, Guizhou’s GDP growth rate has lagged behind the nationwide GDP growth rate for two consecutive years.

Past expenditures need to be paid for by future revenue. Clearly, the scale of investment expenditure in Guizhou has exceeded that which is necessary to support the development of the real economy.

[…] What’s more, officials revealed that 16 of the 23 tourism projects launched during Li Zaiyong’s tenure as party secretary of Liupanshui were now idle. […] Reinforced concrete is real, large-scale construction is real, but so is debt, and so is GDP—liabilities racked up in the past cannot be paid for with imaginary future cash flows.

Behind Guizhou’s “mythical” numbers lies excessive—and one might even argue “ineffective”—infrastructure investment. [Chinese]

On his WeChat blog, economics and finance reporter Wang Mingyuan identified three issues that need to be addressed by the Guizhou investigators in order to restore confidence among private businesses and the general public:

First, did it involve an abuse of judicial power?

[…] Second, the property rights of private enterprises were ignored.

[…] Third, inequality exists between state-owned enterprises and private enterprises.

This is a critical juncture for legislation concerning the private economy, and for regaining the confidence of private enterprise. Whether Guizhou can handle this public opinion crisis and respond appropriately to societal anxieties concerning the three questions above will not only affect Guizhou’s reputation as a place to do business, but will also more broadly affect future legislation and policies to promote the private economy. By no means must this specific case be allowed to impugn the credibility of the law or the government as a whole. [Chinese]

Lastly, a WeChat article by current affairs blogger Xiang Dongliang notes that Ma Yijiayi had the foresight to retain the crusading, not-easily-intimidated attorney Zhou Xiaoyun to fight her corner. In “Hey Liupanshui, Here Comes a Lawyer Who’s Not Afraid of Being Arrested,” Xiang Donliang raises a number of intriguing questions about the case:

When evaluating a lawyer, you might consider their professional skills, or consider whether their fees are high or low. But since when did the key criteria for choosing a lawyer become “Are they afraid of being arrested?” or “Are they brave enough to take on my case?”

[…] And how can an entrepreneur be accused of committing a crime simply for asking the government to pay her for a project based on a signed contract? Is she guilty of the crime of “picking quarrels and provoking trouble,” or the crime of “not taking into account the awkward positions of certain cadres?”

If you serve as a defense lawyer for a suspect, why do you have to run the risk of being arrested or imprisoned? Just how deep is the water in that tiny backwater of a town, Liupanshui?

Now that Guizhou province has set up an investigative team led by the provincial procuratorate, and a lawyer who is not afraid of being arrested has come to Liupanshui, let’s see how this ends. [Chinese]


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