Cover Story
A multibillion-yuan business waits for official go-ahead
By Wang Chao (China Daily)
Updated: 2010-10-15 11:00
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A car advertising a debt collector's service on a street in Haikou, South China's Hainan province. Shi Yan / For China Daily |
BEIJING - Chang Tao works for a company that he says can "make me a millionaire this month and starve me the next".
The company is a Beijing-based unofficial debt collection agency that on a good month, can recover up to 5 million yuan ($747,260) a month for clients, but just 10 percent of that on bad months.
And as the agency can get up to 30 percent of what they recover, their earnings - and those of their staff - are dependent on their successes.
But as debt collection agencies are unregulated in China, there are disruptions to business with government crackdowns.
Moreover, they cannot advertise or market their services to increase their business.
But Chang and his company have had some good news recently.
The China Chamber of International Commerce (CCOIC) has started a debt management committee to provide professional consultation to debt collection companies and the Ministry of Commerce is drafting regulations on this, and may issue licenses to qualified companies.
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Although more than 90 percent of the revenue comes from debt collection, the agencies shun "debt collection" and register as "financial management" companies.
Lin Junyue, deputy director of China Market Commission Credit Management Association, said debt collection is among the few businesses that thrived during the financial crisis.
Figures from China Council for the Promotion of International Trade show that 4 billion contracts are signed every year in China, with only 30 percent carried out, causing a loss of 180 billion yuan annually.
Personal credit debt is accumulating, too. In the first half of this year, overdue debts of more than six months on credit cards reached 7.3 billion yuan.
Small- and medium-sized companies also find it a waste of money and human resources to collect debts, so many turn to debt collection companies.
CCOIC estimates that several thousand companies in China are in the business now, but it is hard to estimate how big the industry is.
"We don't have the pool of debt collection companies since they are mostly doing it underground," said CCOIC's Lin Shunjie. "But the number must be huge."
However, without laws to regulate the debt collection market, companies and debt collectors often find it hard to trust each other.
"Some debt collectors disappear after they retrieved the money for their clients," said Li Dahong, a partner of the H&Y law firm, who has been dealing with debt collection cases for years.
Debt collection companies are unhappy, too. "After we send the money we claimed to their account, they often break their promises and refuse to pay us the service fee," a member of a debt collection company said.
The first debt collection companies were born in the mid-1990s, but have never been treated as legal entities.
Over the years, the Ministry of Public Security has launched several sweeping campaigns to crack down on such companies.
Historically in China, debt collection was carried out by gangs and criminals, who would often threaten and beat up debtors.
"Nowadays, some companies still hire gangsters to threaten debtors, either by painting words on their doors or breaking their windows," said Lin Junyue.
Chang, however, said these cases are few nowadays. "Most debt collection companies choose to solve the issue by negotiating with the debtors face to face or by making repeated calls to urge them to repay the money - at least my company operates like that."
Legal or otherwise, the debt collection business is booming, especially after the financial crisis when more companies went bankrupt.
Yu Ping, vice chairman of China Council for the Promotion of International Trade (CCPIT) and CCOIC,admitted that lack of regulation is a big problem for this industry.
"There is no professional training for the collectors and some of them have no sense of the law. Besides, no qualification is required to open a debt collection company."
Facing the chaos in the debt collection industry, the incoming regulations drafted by the Ministry of Commerce are seen as a milestone of the market's development.
"The ministry is collecting information and advice from companies and experts, before the final regulation comes out," Lin Shunjie said, "as the regulation may touch the interest of many groups" including some banks and law firms.
"They are worried that the cake of debt collection market will be shared by more participants once debt collection companies get legal status; but actually different players have different cakes," he said.
"For example, cases of more than $1 million are usually done by law firms or banks; smaller amounts are dealt with mostly by debt collection companies."
China Daily