China is seeking the extradition of private entrepreneurs who have fled abroad after defaulting on billions of yuan owed to state banks and loan sharks, two independent sources said, a rare move underlining Beijing’s concern over the scale of losses.
Airports and other border crossings have received lists containing the names of heavily indebted small and medium enterprise (SME) bosses who are not permitted to leave the country, said the sources, who have direct knowledge of the situation and requested anonymity because of political sensitivities.
“Foreign governments have been asked to repatriate [fugitive] SME bosses and help recover their overseas assets,” said the first source with knowledge of the negotiations.
Many of the managers are suspected to have fled to countries such as the US, Canada, Australia and Singapore, according to Chinese media reports.
The problems began with private companies in the eastern city of Wenzhou — famous for its entrepreneurs and speculators — turning to the underground lending market after Beijing clamped down on credit as part of a campaign against inflation.
Squeezed by falling export orders and rising raw material, land and labor costs — and in some cases suffering losses on their own property investments — many found themselves unable to repay, leading some SME bosses to abandon their debts, factories and workers.
The troubles are now spreading to other areas, including several cities in Zhejiang Province and Erdos in the northern region of Inner Mongolia, according to local media.
“SME bosses who owe banks a lot of money are under ‘border control,’” the second source said, referring to government monitoring and curbs on their overseas travel.
Heads of at least 80 companies in Wenzhou have gone into hiding because they could not repay loan sharks, leaving behind debts, unpaid wages and thousands out of a job, according to the online edition of Xinhua news agency.
The Foreign and Public Security ministries declined immediate comment when reached by telephone.
Beijing is also seeking to sign extradition treaties with more countries in its effort to bring home runaway officials and recover their overseas assets, the sources said.
China has such treaties with at least 33 countries since 1993, according to the Ministry of Foreign Affairs Web site.
China and the US have no extradition treaty, although the countries have cooperated on corruption cases before, including in 2004, when a former Bank of China manager was deported to face charges at home.
The Chinese government has long had a problem with corrupt officials fleeing the country.
More than 10,000 Chinese Communist Party and government officials fled to the US or Europe with 650 billion yuan (US$102 billion) in bribes or embezzled state funds between 1999 and 2009, according to a Peking University study.
Beyond worries about the financial impact on banks, China’s government is also concerned about the potential for unrest stemming from factory workers who find themselves unemployed and missing their final paycheck.
SMEs are a backbone of China’s economy, accounting for 99 percent of the country’s 43 million enterprises, 60 percent of GDP, 50 percent of government tax revenue and 80 percent of urban jobs, according to official figures.
Alarmed by the threat of social instability, the government has scrambled to throw a lifeline to cash-strapped private enterprises by extending new loans to them.