Debt Collection

If you think collecting debts in the U.S. is difficult, you might take a leaf from the manual of debt collectors in China. One debt collector, Li Qiuzhong, has had an 80 percent success rate. As described in a recent article in the Wall Street Journal by Bernard Wysocki, Jr., Mr. Li rides up on his motorbike to the delinquent debtor's home and business wearing a bright red jacket, emblazoned with the words, "Debt Collector." He signals his presence by beating on a large bronze gong. Then, he walks in and loudly announces that he is there to collect the householder's unpaid debts. (In this instance, the debts had been unpaid for five years.)

As Mr. Li explains, "The Chinese don't like to lose face. But if they don't pay their bills, that's exactly what I do to them." He had retired, but when his son had been unable to obtain payment on a $2,000 debt, he took on the task. First, he tried the polite approach. When that failed, he had his red jacket stitched up and confronted the debtor at the department store where she worked. Within minutes, she agreed to pay, and Mr. Li was in business.

This tale provides a good example of the "law of unintended effects." In a growing economy, failure to provide convenient and effective legal means to collect unpaid debts creates an environment for harsh collection tactics. The rising tide of consumer and business debts in China is coupled with a flawed legal system. There are no small claims courts. Instead, there are about 2,000 local courts having no limit on the size of claim. As a result, cases drag on for years, with the outcome sometimes depending on various forms of influencing the judges. Even if a creditor wins his suit, there is no means of enforcing the court's award. This legal tangle has led to a market for debt collectors. Although China officially banned them in the mid-1990's, the number of debt collectors grew with the volume of unpaid debts. Some are associated with organized crime.