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破产?豁免?大赦天下?

消费信贷和中小企业融资的违约已经铺天盖地。让那些亳无希望的人们破产,或者豁免他们、解放他们,已经刻不容缓。

承认吧:我们犯了一个集体性的世纪大错。没有象样的基础设施,信贷行业的高楼大厦已经建成,让人提心吊胆。信贷早已过剩。

大多数中小企业不配获得任何外部融资,因为它们破产的概率太高。而相当多的消费者也不配获得任何贷款,即使负利率也还不起。

那15.4%的利率上限并不是坏事。我们可以做得更多、更好。

今天,张化桥在南华早报的文章。如下,

Why China’s subprime credit crisis would benefit from a debt amnesty.

The recently announced lower interest rate ceiling on non-bank credit will force lenders to vet borrowers more carefully.

In the longer term, a debt amnesty could provide a clean slate upon which China could construct Western-style credit infrastructure.

Joe Zhang, SCMP.com.

Published: 3 Sep, 2020.

Last week, while China watchers were preoccupied with Covid-19 and US-China tensions, Shenzhen authorities released guidelines for consumer bankruptcy. While details are not yet available, the guidelines confirm that pressure is mounting on the government to do something for the tens of millions of highly indebted consumers.

A week earlier, China’s Supreme Court lowered the interest rate ceiling on all non-bank credit, from 24 per cent per annum to 15.4 per cent, to the despair of many lenders. The court only said that since the banking sector’s prime lending rate has come down, so should the formula-driven interest rate cap. But the rate cut is so substantial that, two weeks on, bankers are still in shock, trying to figure out what it means for their fortunes and the larger industry itself. While the government may not yet have a concrete plan for a nationwide debt amnesty, China could very well sleepwalk into it in the next few years. If that were to happen, it could be very positive for the country as it would prove to be a foundation on which Western-style credit infrastructure could be constructed. A clean slate is indeed needed.

For decades, the shadow banking industry has relied on high interest rates to compensate for the high risks associated with subprime credit. However, evidence has emerged that tens of millions of subprime borrowers have been exploited and will never be able to get out of debt traps.

The sector’s dire situation looks no different from that in Bolivia, Mexico or Bangladesh. In fact, Chinese borrowers are in a far worse predicament as there is no relief mechanism such as bankruptcy.

Many free-market thinkers complain that the lower rate ceiling will deprive subprime borrowers of much-needed credit and may even encourage fraud. But I support the lower cap because it will force lenders to more carefully assess borrowers’ ability to repay, and their suitability to borrow. After all, more credit is not necessarily better for the poor. Because credit can be addictive, borrowers need self-discipline while lenders must take responsibility, too. Consumer loans are often linked to small business finance; business owners often use their homes as collateral for business loans and/or provide personal guarantees. Unfortunately, China’s rapid credit growth has turned small and medium-sized enterprise (SME) finance into a toxic field, just like consumer finance.

“The state should do more to support financing for SMEs” is a mantra the world over. But, having spent nine years in the field (and having lost a lot of money, too), I now doubt the idea, particularly in China where there is too much finance and where enforcing repayment is often difficult. We have built a huge finance house on a shaky legal foundation.

Statistics show that about half of small businesses do not survive more than five years, anywhere. Why, then, should a for-profit lender take SME finance seriously when the odds are obviously against it? Charging higher interest rates sounds like a good idea, but it only pushes borrowers over the edge faster. Higher interest rates are preordained to meet the most desperate borrowers.

One must ask why the many billions of dollars of soft loans the West has dispensed to developing countries (with low rates and flexible terms and conditions) have gone sour. Why have US student loans grown to become such a huge problem despite their low interest rates of mostly 3-5 per cent?

The truth is that a large percentage of subprime borrowers (both consumers and SMEs) cannot even afford negative interest rates. I have come to the conclusion that most small businesses do not deserve any outside funding. This may sound heartless, but it is what many lenders have known all along. High interest rates do not compensate for the risks.

While SMEs seem to have a genuine need for funds, this need is based on overly optimistic assumptions. Most should rely on equity. I dare say, probably half of China’s SME finance today is delinquent. That is not a cyclical issue but a structural one. Covid-19 is just one reason.

Thomas Levenson’s Money for Nothing presents the South Sea bubble not as a period of madness and a disaster, but a learning process that in the long term had valuable outcomes. As I reflect on the sorry state of China’s non-bank credit sector (read: subprime sector), I am thinking along those lines, too.

True, many millions have been destroyed, thousands have sadly gone to jail (many unfairly), and many tangled webs must be undone, but if we can collectively learn that financial engineering does not create wealth for society, and that we need fair rules for the credit market, then all the suffering China is now enduring will have been worth it.

China is no stranger to debt amnesty. In the early 1950s, as part of the communist revolution, China implemented a comprehensive package of land reforms and debt relief. It was extremely popular – even though the command economy China subsequently built on top of the reforms proved to be apocalyptic.

The debt amnesty in the 1950s robbed my grandparents of everything they had inherited and built. But if there were to be an amnesty in the next few years, I, as a lender, would endorse it. Like bad marriages, we have entered a mutually destructive relationship without proper know-your-customer rules, improper selling, grievances, bankruptcy procedures and rehabilitation. But we now know we need the infrastructure. Finally, an amnesty will go a long way towards limiting the reckless credit expansion that China has become famous for.

Joe Zhang is a director of several non-bank lenders including Wansui and Huirong and the author of Inside China’s Shadow Banking: The Next Subprime Crisis?

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