On the eve of this year’s Chinese New Year, a female entrepreneur from mainland China posted a video revealing her struggles with unpaid debts. Instead of recovering the owed money, her company’s public account was frozen. She questioned, “Where is the problem in the law? Who is really harming the Chinese people?” Experts point out that Chinese companies getting entangled in debt issues is a common occurrence, with a large number of Chinese companies closing down last year, indicating a worsening economic and social situation under the Chinese Communist Party.
On January 28th (Chinese New Year’s Eve), Zhao Lei, the head of Shandong Zibo Bominghui Symbol Clothing Co., Ltd., a female entrepreneur, shared her company’s difficult journey to recover debts on Douyin (Chinese version of TikTok). Not only did she fail to recover the debt, but her company’s public account was frozen for over three months.
In the video, Zhao Lei explained that in January 2023, her company produced work uniforms for a company called “Qian Neng Castings” with a contract value of 100,000 yuan, but the company did not provide any advance payment. By the end of the year, when she tried to collect the payment, she found out that the company was on the verge of bankruptcy. The representatives of Qian Neng Castings informed her that they could only offer goods worth 50,000 yuan to offset the debt and allowed her to select items from their warehouse to offset the debt.
Her lawyer told her that the company might actually go bankrupt and advised her to take whatever items she could to offset as much of the debt as possible. If the company did go bankrupt, she might not receive any payment at all.
Disappointed by the turn of events, Zhao Lei reluctantly chose several items such as bearings, tires, and flow meters to offset the debt. The company representative calculated the prices based on records on the computer, issued her a form, and had her sign an agreement to settle the debt with goods.
She lamented, saying, “I exchanged 10,000 yuan for this worthless 5,000 yuan.”
To her surprise, this was just the beginning of her troubles. After returning with the items, she found out that they were unsalable. By April 2024, she had to sell these items as scrap for less than 4,000 yuan.
Unexpectedly, in November 2024, her public account was frozen by the judicial authorities. The reason given was that her way of offsetting the debt was illegal, and she was instructed to return the previously taken goods exactly as they were, or more than 50,000 yuan would be deducted from her account.
Feeling overwhelmed, Zhao Lei contemplated her options, unsure of what to do next. Consulting several lawyers, they advised her to contest the decision, although no one could guarantee her victory in court.
Disheartened by her past experience in legal battles, she lost the courage to go through that again. Reluctantly, she spent a significant amount of energy repurchasing the items she had sold off, stating that the ordeal was “indescribably hard.”
After the goods were taken away, she found herself alone in her office, locking the door behind her and bursting into tears.
In the video, she sobbed, “I don’t know what I did wrong! I don’t know why I am being constantly deceived. Where in the law did things go wrong?!”
Zhao Lei also obtained a list of debtors from the company that owed her money, revealing over a hundred companies with assets ranging from tens of thousands to tens of millions, scattered all over the country. She expressed deep frustration at being a small player among these entities.
Describing the situation further, Zhao Lei mentioned that on the list, there were over a dozen companies like hers that had been deceived twice in a similar manner, leading to one company’s bankruptcy.
To her dismay, she discovered that the company owing her money also owed millions in taxes, a fact she found perplexing.
She questioned, “Now I understand why the Chinese economy is in such a dire state, why people are struggling to make ends meet. Isn’t this due to legal loopholes? Isn’t someone deliberately setting traps to harm us?”
She further inquired, “With the economy in such turmoil, how many people will suffer due to the bankruptcy of one company? When the economy is in a dire state, isn’t it due to someone’s deliberate actions? Who is sabotaging us Chinese people? Who is harming our ordinary citizens?”
Hu Liren, a former Shanghai entrepreneur now living in the United States, expressed to the Epoch Times that situations like Zhao Lei’s are becoming increasingly common and have reached a vicious cycle.
He mentioned that many companies, though still operational, carry heavy debt burdens like triangular debts, accounts receivable, and accounts payable. Some companies are mortgaging assets to acquire loan funds from banks to address short-term needs. Currently, many entrepreneurs are attempting to flee, resulting in a significant number abandoning their businesses.
Zhao Lei’s ordeal is just the tip of the iceberg when it comes to the dire situation of private enterprises in China. According to data released by the National Bureau of Statistics of the Chinese Communist Party on January 27th, the profits of national industrial enterprises above a designated scale dropped by 3.3% in 2024, with the profit growth rate declining from 10.2% at the beginning of the year to -3.3% by the end.
Last month, the Purchasing Managers’ Index (PMI) for China’s comprehensive manufacturing industries was 50.1%, a decrease of 2.1 percentage points compared to the previous period, approaching the critical point.
Based on statistics from the Chinese Communist Party’s National Bureau of Statistics, at least 1.05 million catering establishments closed down in the first half of 2024, including high-end restaurants in first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen.
Taking Zhejiang Wenzhou, a city once famous for its shoe industry as an example, over 90% of shoe factories failed to secure orders. Within a year, more than 100 shoe factories closed down due to the owners fleeing, and the number of closed and bankrupt factories was countless.
By October 2024, at least 18 multinational corporations announced the closure of their factories in China, downsizing their operations significantly and laying off a large number of employees. Companies such as the American tech giants Cisco, Microsoft, IBM, Japanese automakers Toyota and Honda, German automaker Volkswagen were part of this trend.
In 2024, even Chinese government departments, public institutions, and state-owned enterprises began layoffs and pay cuts. Reports from Beijing, Shanghai, Hangzhou, among other places, revealed that civil servants, including law enforcement officers, faced substantial pay cuts of around 20%, with reports of government wage arrears being common.
According to a report by China Law Press Research Center, in just the first half of 2024, over 48,100 companies in China went bankrupt, averaging over 267 closures per day, significantly surpassing the number of bankruptcies in 2023, which stood at 46,112.
Starting from February 4th onwards, the United States levied a 10% tariff on Chinese goods. UBS (Union Bank of Switzerland) believes that continued tariffs will lead to decreased Chinese exports, weakened investment and consumption, resulting in a drag of 0.3 to 0.4 percentage points on GDP growth.
Hu Liren stated that China’s economy is expected to continue its downward spiral due to three major issues. Firstly, a leftward shift in politics has led the international community to completely lose confidence in China (the Chinese Communist Party). Secondly, exports are likely to decline as the international community is reducing imports of Chinese goods. Thirdly, severe repercussions are expected from the sharp downturn in the real estate market.
He further analyzed, “Due to the plummeting real estate prices, many related industries are stagnating, leading to a cascading effect of triangular debts. Such situations are expected to rise in the future. Once the financial problems of some companies surface, those companies are doomed.”
Expressing concerns about China’s future, Hu Liren feared that China might end up following the footsteps of North Korea, stating, “Xi Jinping is on this path, but he can’t turn back now. There’s no turning back.”