Chinese businesswoman’s arrest after demanding US$30 million in arrears from local government triggers investigation, public outcry
- Ma Yijiayi was contracted to build schools and museums, but an indebted government was unable to pay her, then detained her after she refused lowball offer
- Widely discussed case is seen highlighting threats to financial stability, economic growth and confidence as leadership readies for ‘two sessions’
The fervent backlash reverberated through social media after it was revealed that city-level authorities in an indebted Chinese province had arrested entrepreneur Ma Yijiayi for trying to recoup millions in back payments from the government.
Since 2016, her construction firm had been contracted by Liupanshui city in Guizhou province to build 10 local projects, including kindergartens, primary schools, museums, resorts and hotels, according to a report on Monday by the Beijing-based China Business Journal, which has since removed the story.
But reposts have continued to circulate online, outlining how the local government was alleged to have owed the businesswoman 220 million yuan (US$30.6 million) and had previously tried to settle all of the debt for 12 million yuan – merely 5.4 per cent of what her firm was said to be owed.
She refused their lowball offer and continued pressing for payment, taking the government to court, the news site reported. But the arrears remained unpaid, so she persisted.
In November, Ma, 46, was accused of “picking quarrels and provoking trouble” – an arbitrary and controversial charge that had become so broadly defined and levelled against aggrieved victims in China that the nation’s top court admitted in August that it was being “excessively used” at local levels.
But that was not enough to deter Liupanshui police from arresting both her and some of her defence lawyers on the same charge just three months later.
Following Monday’s report, authorities in Liupanshui, with a population of 3.6 million, contended on Tuesday that they had paid off nearly 90 per cent of the money owed to Ma, “up to now”. And they offered an explanation for her arrest.
“We arrested Ma for using GPS to illegally track and obtain citizens’ personal information, and for hiring eight people to post false information online and distribute leaflets and large-character posters in public,” it said in a statement on its official WeChat account.
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On Wednesday, provincial prosecutors intervened, setting up a special investigative team to get to the bottom of what had transpired.
Analysts say Ma’s story vividly illustrates how the central government has its hands full in trying to deal with what has seemingly become an insurmountable mountain of debt among local-level governments – with 40.7 trillion yuan confirmed, and likely more implicit debt hidden in financing vehicles, state-owned enterprises and other entities.
Public discourse over the case also comes at a particularly sensitive time, in the lead-up to next week’s annual parliamentary sessions known as the “two sessions”, when economic agenda items will be front and centre.
Beijing is expected to announce a gross domestic product (GDP) growth target of around 5 per cent for this year when Premier Li Qiang delivers his first government work report to lawmakers.
But the widely discussed case is seen highlighting outsized threats to financial stability, economic growth and waning confidence among investors who observe how many businesses are struggling across the country.
Wang Mingyuan, Beijing Reform and Development Commission
“The incident is not only the tip of the iceberg of the local financial and economic crises in Guizhou, it is likewise a serious problem facing many provinces” in central and western parts of China, said Wang Mingyuan, a researcher with the Beijing Reform and Development Commission, in an article by finance and business magazine Caixin on Wednesday.
“If we don’t accelerate a solution to the problem of high local debt, soon we’ll see more businesses being dragged down and employees being owed wages,” he warned.
Guizhou, a mountainous southern province, had been a front-runner in economic growth after the turn of the century, owing to its massive infrastructure investment. But its debt-driven model proved unsustainable in recent years as revenue fell short of repaying contractors such as Ma.
Peng Peng, executive chairman of the Guangdong Society of Reform, said Ma’s case also exposes the challenges facing Chinese entrepreneurs when local governments themselves become the biggest players in the debt game.
Given current economic growth targets, “Beijing doesn’t seem to have too many options other than further debt issuance,” he said.
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Since the fourth quarter of last year, local governments have been stepping up plans to issue refinancing bonds to tackle off-balance-sheet debt – known as “hidden” debt – that is concentrated largely in local government financing vehicles (LGFVs). Additionally, more funds have been transferred from central government coffers to help municipalities.Guizhou said in late January that it planned to issue 32.5 billion yuan worth of refinancing bonds.
And last week, state-owned Guizhou Hongyingda Construction Project Management issued a five-year non-public bond worth 1.8 billion yuan to help repay government debt, Bloomberg reported on Monday.
However, on Wednesday, S&P Global Ratings credit analyst Laura Li and her team issued a report saying: “The move is essentially replacing an old problem with a new one, in our view. The deal could be a step backwards for LGFV reform and one that exacerbates moral hazard by adding yet another safety net when troubles arise for incautious borrowers.”
Her team estimated that the debt held by Guizhou’s district and county-level financing vehicles was above 400 billion yuan, accounting for more than a third of the province’s total LGFV debt.
