China’s Punishment for People With Bad Debts: No Fast Trains or Nice Hotels

FOSHAN, China—Qin Huangsheng once imagined a better life in the city when she left her home village to become a factory worker at age 16.

Now, in her early 40s, she has $40,000 in personal debt and a base salary of $400 a month. Debt collectors are hounding her. She is blocked from buying tickets on China’s high-speed rail, just one of the penalties the government is increasingly imposing on people who don’t pay their bills.

On the ageing slow trains she is left to ride, Qin sometimes looks at the other passengers and thinks: “I wonder if they’re all bad debtors like me.”

People across China are being weighed down by their debts and a system that penalises them for not paying the money back. Beijing is cracking down on delinquent debtors by seizing their salaries or restricting them from getting government jobs, as well as curbing their access to high-speed trains and air travel. Many are forbidden from buying expensive insurance policies and told they aren’t allowed to go on vacation or stay in nice hotels. Authorities can detain them if they don’t comply.

The number of people on a publicly available government delinquency blacklist has jumped by nearly 50% since late 2019 to 8.3 million today. Courts can put people on the blacklist when they don’t fulfil judgments against them to pay money back or are deemed to be not cooperating with legal proceedings.

Unlike in the U.S., China doesn’t allow most people—including those who had a run of bad luck—to declare bankruptcy to write off bad debts and move on with their lives, a policy some Chinese scholars are criticising as unfair.

Household debt has surged by 50% in the past five years to around $11 trillion today. While that is lower than the $17.5 trillion Americans owe, it is a huge sum in a country where people earn far less.

With home prices falling, deflation risks becoming entrenched and unemployment a persistent challenge , Chinese leaders are eager to get people spending more. But each additional dollar going to pay for debt is taking away one that could be used to splurge on new clothes or pay for a vacation. The threat of punishment for falling behind on debt is making many families more conservative with their money.

Retail sales of consumer goods in China rose 4.7% year-over-year in the first quarter, the government said Tuesday, lagging behind total economic growth of 5.3%. As many in China curtail spending, the government is giving priority to turbocharging manufacturing and exports, a strategy that is exacerbating trade tensions with the West.

With so many Chinese consumers under financial pressure, Western companies including Apple , Estée Lauder and General Motors have reported weaker sales in China .

Chinese officials didn’t respond to questions about the blacklisting system. The government has said previously it only seeks to target those who have the ability to repay their debts but refuse to do so.

Behind China’s personal-debt surge

China’s long housing boom was a significant cause of the rise in personal debts, because many people had to borrow more to afford homes. Some buyers took on extra debt to buy more properties for investment purposes, sometimes letting them sit empty. Now that the boom is over and prices are falling , many are stuck with debts they can’t handle.

The number of foreclosed homes listed for sale rose 43% in 2023 to roughly 400,000 properties, according to real-estate research firm China Index Academy.

The increase in personal debts is also partly a result of more people using credit cards or tapping personal credit lines to handle expenses as the economy stagnates.

Many economists say a U.S.-style financial crisis is unlikely in China soon. State control of the banking system means the government can absorb losses and inject capital in an emergency. Household debts have also largely plateaued over the past two years, as many people give priority to using extra cash to pay down liabilities rather than shopping or investing in stocks.

Still, the prevalence of large personal debts is a problem for China’s leadership.

“Household debt booms tend to lead to bad macroeconomic outcomes, even in the absence of a financial crisis,” said Amir Sufi, a University of Chicago economist. China has no simple fix. “Once the cycle starts, it’s usually one in which it’s painful, long and difficult to predict when it will end,” Sufi said.

A tough system for borrowers

China has tried for years to lift personal spending to ease its economy’s traditional reliance on infrastructure and real-estate growth. Its banks issued tens of millions of new credit cards each year, with outstanding balances jumping 50% between 2018 and 2023 to well over $1 trillion. Private technology apps such as Alipay and WeChat also started helping consumers secure loans as their digital payment systems soared in popularity.

But when debts go unpaid, a person’s income can be seized by the state to cover their liabilities, leaving debtors with a small allowance to scrape by.

A 38-year-old man petitioned courts in the southern city of Guangzhou to raise his monthly allowance to 12,000 yuan, equivalent to around $1,600, from 9,500 yuan to help pay for a newborn child. Judges denied his request late last year, and instead concluded that his allowance should be cut by nearly 40% because he was already getting too much, court records show.

A black market has emerged to serve people on the blacklist. In one case, Shanghai authorities busted a ring of scalpers who were booking high-speed rail tickets on behalf of debtors who were barred from doing so themselves. In early 2021, authorities tracked down a debtor who had been using the service and took him into custody, according to a local court.

The current system gives priority to protecting creditors—often powerful, state-owned institutions—at the expense of helping struggling individuals. Scholars who study the issue say China urgently needs a nationwide personal-bankruptcy system to achieve leader Xi Jinping’s goal of making the country more equitable , by forcing creditors and debtors to share the costs of soured loans.

“A personal-bankruptcy system is a mechanism for the redistribution of wealth,” Li Shuguang, a scholar who has advised the government on bankruptcy policy, wrote in a Chinese magazine commentary online last summer.

Movement on the issue has been stymied in part by opponents who believe such a system would only encourage more people to shirk their debts.

One woman’s saga

For Qin, the former factory worker, easy access to credit backfired badly.

As a 16-year-old in 1999, Qin boarded an overnight bus from her home in rural southern China to the grimy manufacturing hub of Dongguan, north of Hong Kong.

Her parents, who are farmers, couldn’t afford a payment of less than $15 needed for her to take a high-school entrance exam. She vowed to make it on her own, and found work in factories producing slippers and golden jewellery.

A few years later, Qin secured her first credit card. With it, she bought a computer to teach herself to type so she could land a better job.

When the bill was paid, Qin said she tried to cancel the card. “Keep it for an emergency,” the bank clerk told her.

Qin’s career flourished and she eventually moved to the metropolis of Guangzhou. By 2010, she said, she was managing bidding for a company that supplied fire-safety equipment to real-estate projects. Her nest egg steadily grew from the lucrative commissions she earned in the property boom.

When the property sector slowed, she jumped industries. An acquaintance had been involved in a startup that was developing software to help small-business owners collect WeChat data to generate more foot traffic and aid marketing efforts.

Qin said she invested the equivalent of around $150,000 of her savings into the venture.

The startup burned through her initial investment as it tried to get the software up and running. Qin said she then agreed to start putting some of its expenses, including office supplies, rent and employee salaries, on her credit cards, and to tap personal credit lines she had obtained via WeChat and Alipay.

A roadshow by the company was warmly received, she said. But its prospects dimmed after the Covid pandemic hit.

The company’s struggles left Qin with the equivalent of tens of thousands of dollars of debt. Phone calls from debt collectors have become a daily occurrence.

With no option of bankruptcy, Qin concluded that a new job was her only way out of trouble.

“As long as I’m still living and have a life, I can work hard to earn the money back,” she said.

That path has faced unexpected difficulties. In 2021, while preparing for a business trip to Shanghai, more than 700 miles northeast of Guangzhou, Qin realized that she had lost her access to high-speed rail, where a government I.D. is required to buy a ticket. She took the slow train—and later quit that job in part because the travel restrictions were making it impossible.

Local officials didn’t respond to questions about Qin’s case and The Wall Street Journal wasn’t able to verify some details of her account.

Today, Qin is working in a shop in Foshan, south of Guangzhou, selling traditional Chinese medicines. With a base salary of about $400 a month, she has found it tough to put a dent in her debts, but said she has managed to pay back two of her credit cards so far, with about $40,000 still to go.

Qin is trying to stay optimistic, hoping that medicine will be in high demand as China’s population ages, opening the door to bonuses and potentially even running her own shop. Still, she has had to get creative to earn the cash to pay her debts.

Her current role requires Qin to collect payments from customers using a digital wallet on WeChat. But she said that function on her account has been frozen several times since 2022, leaving Qin to seek help from her family.

She decided not to tell her parents about the full scale of her troubles, however.

If they knew the truth, Qin said, they “wouldn’t be able to sleep.”

Former New Hampshire Gov. Chris Sununu delivered a warning to Treasury Secretary Scott Bessent during a recent visit to Washington: Already-high airfares will surge if the war in Iran doesn’t end soon.

Sununu, a Republican who represents some of the biggest airlines as president of the industry group Airlines for America, has for weeks sounded the alarm to Trump administration officials about the economic fallout from high jet fuel prices. The war, Sununu has argued, must come to a close soon, or things will get worse.

Administration officials have gotten the message.

Privately, President Trump’s advisers are increasingly worried that Republicans will pay a political price for the rising fuel costs, according to people familiar with the matter. Many of those advisers are eager to end the war, hoping prices will begin to moderate before November’s midterm elections.

The fallout from the U.S.-Israeli attack in late February has slowed traffic through the Strait of Hormuz, a vital shipping lane, triggering a sharp increase in oil, gasoline and jet-fuel prices.

That means consumers are grappling with high costs ahead of the summer travel season, as they consider vacation plans.

Sixty-three per cent of Americans said they put a great deal or a good amount of blame on Trump for the increase in gas prices, according to a new poll conducted by NPR, PBS and Marist.

More than 8 in 10 Americans said struggles at the gas pump are putting strain on their finances.

Jet-fuel prices roughly doubled in a matter of weeks after the war began, and they have remained high. Airlines have said that will add billions of dollars of additional expenses this year, squeezing profit margins.

U.S. airlines spent more than $5 billion on fuel in March—up 30% from a year earlier, according to government data.

Carriers have been raising ticket prices, hoping to pass the cost along to consumers, and they are culling flights that will no longer make money at higher price levels.

In March, the price of a U.S. domestic round-trip economy ticket rose 21% from a year earlier to $570, according to Airlines Reporting Corp., which tracks travel-agency sales.

So far, airlines have said the higher fares haven’t deterred bookings and they are hoping to recoup more of the fuel-cost increases as the year goes on.

Earlier this week, Trump said the current price of oil is “a very small price to pay for getting rid of a nuclear weapon from people that are really mentally deranged.”

Secretary of State Marco Rubio told reporters that if Iran got a nuclear weapon, the country would have more leverage to keep the strait closed and “make our gas prices like $9 a gallon or $8 a gallon.”

Trump has taken steps in recent days to bring the war to an end. Late Tuesday, the president paused a plan to help guide trapped commercial ships out of the Strait of Hormuz, expressing optimism that a deal could be reached with Iran to end the conflict.

Crude oil prices fell below $100 a barrel on Wednesday, after reports that Iran and the U.S. are working with mediators on a one-page framework to restart negotiations aimed at ending the conflict and opening the strait.

Sununu said Trump administration officials are conscious of the economic fallout from the war: “They get it…and I think that’s why they’re trying to get through the war as fast as they can.”

But he cautioned that it could take months for prices to return to prewar levels.

“Ticket prices won’t go down immediately” after the strait is fully reopened, Sununu said. “You’re looking at elevated ticket prices through the summer and fall because it takes a while for the prices to go down.”

Since the initial U.S.-Israeli attack in late February, Sununu has met in Washington with National Economic Council Director Kevin Hassett, representatives from the Transportation Department and senior White House officials.

A White House official confirmed that Hassett and Sununu have discussed the effect of increased fuel prices on the airline industry. The official said the conversation touched on how the industry can mitigate the impact of high jet fuel prices on consumers.

“The president and his entire energy team anticipated these short-term disruptions to the global energy markets from Operation Epic Fury and had a plan prepared to mitigate these disruptions,” White House spokeswoman Taylor Rogers said, pointing to the administration’s decision to waive a century-old shipping law in a bid to lower the cost of moving oil.

Rogers said the administration is working with industry representatives to “address their concerns, explore potential actions, and inform the president’s policy decisions.”

A Treasury Department spokesman pointed to Bessent’s recent comments on Fox News that the U.S. economy remains strong despite price increases. The spokesman said Treasury officials have met with airline executives, who have reaffirmed strong ticket bookings.

“We’re cognizant that this short-term move up in prices is affecting the American people, but I am also confident, on the other side of this, prices will come down very quickly,” Bessent told Fox News on Monday.

The war has already contributed to one casualty in the industry: Spirit Airlines. Company representatives have said they were forced to close the airline because the sustained surge in jet-fuel prices derailed the company’s plan to emerge from chapter 11 bankruptcy.

The Trump administration and Spirit failed to come to an agreement for the company to receive a financial lifeline of as much as $500 million from the federal government.

Transportation Secretary Sean Duffy has argued that the Iran war wasn’t the cause of Spirit’s demise, pointing to the company’s past financial struggles, as well as the Biden administration’s decision to challenge a merger with JetBlue.

Other budget airlines have also turned to the federal government for help since the U.S.-Israeli attack. A group of budget airlines last month sought $2.5 billion in financial assistance to offset higher fuel costs, and they separately wrote to lawmakers asking for relief from certain ticket taxes.

China’s Punishment for People With Bad Debts: No Fast Trains or Nice Hotels

Beijing’s crackdown on millions of delinquent debtors makes catching up on unpaid bills a slog

Behind China’s personal-debt surge

A tough system for borrowers

One woman’s saga

Administration officials have spoken to the airline industry, which has voiced concerns about the rising costs.