Try mediation as first option
Source: Xinhua |
December 7, 2011, Wednesday
|
Print Edition
Print Edition
CHINA'S Supreme People's Court yesterday issued a circular on the proper handling of conflicts concerning private loans after cases of bosses being unable to pay back informal high-interest loans nearly forced companies to the verge of bankruptcy.
"Private loans, many of which occurred in obscurity, are very likely to create high-interest scandals, the bankruptcies of small and medium-sized businesses, illegal fund collections and repayments forced by violence, resulting in personal assaults and disrupting the country's financial order," the supreme court said.
Wenzhou, a city in coastal Zhejiang Province that is known for its booming private entrepreneurship, has been especially affected by a severe debt crisis since April.
More than 90 bosses of private companies in the city were previously reported to have disappeared, committed suicide or declared bankruptcy - invalidating debts of about 10 billion yuan (US$1.57 billion) owed to banks and individual creditors pooled from the informal lending market. The most recent case of a runaway boss occurred on October 18.
One prominent boss who returned is Hu Fulin, president of Xintai Group, China's largest eyeglass maker. He fled to the United States to escape a 1.5 billion yuan debt in September, but returned after banks agreed to relax repayment terms.
According to the circular, people's courts at various levels should mediate as the first option in resolving cases regarding private loans, especially those involving multiple lenders or borrowers that are likely to lead to mass incidents.
Business people said they rapidly expanded their businesses during the credit binge created to stimulate the economy during the 2008-2009 global financial crisis, but found themselves unable to repay bank loans and subsequently informal high-interest loans this year when banks were ordered to tighten lending to curb inflation.
However, the circular stipulated that courts should not offer legal protection for lending activities involving illegal acts such as gambling or drugs.
Interest rates on private loans can be relatively higher than those set by banks.
"Private loans, many of which occurred in obscurity, are very likely to create high-interest scandals, the bankruptcies of small and medium-sized businesses, illegal fund collections and repayments forced by violence, resulting in personal assaults and disrupting the country's financial order," the supreme court said.
Wenzhou, a city in coastal Zhejiang Province that is known for its booming private entrepreneurship, has been especially affected by a severe debt crisis since April.
More than 90 bosses of private companies in the city were previously reported to have disappeared, committed suicide or declared bankruptcy - invalidating debts of about 10 billion yuan (US$1.57 billion) owed to banks and individual creditors pooled from the informal lending market. The most recent case of a runaway boss occurred on October 18.
One prominent boss who returned is Hu Fulin, president of Xintai Group, China's largest eyeglass maker. He fled to the United States to escape a 1.5 billion yuan debt in September, but returned after banks agreed to relax repayment terms.
According to the circular, people's courts at various levels should mediate as the first option in resolving cases regarding private loans, especially those involving multiple lenders or borrowers that are likely to lead to mass incidents.
Business people said they rapidly expanded their businesses during the credit binge created to stimulate the economy during the 2008-2009 global financial crisis, but found themselves unable to repay bank loans and subsequently informal high-interest loans this year when banks were ordered to tighten lending to curb inflation.
However, the circular stipulated that courts should not offer legal protection for lending activities involving illegal acts such as gambling or drugs.
Interest rates on private loans can be relatively higher than those set by banks.
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