A Fate Worse than Debt

“No one knows I’m so buried in debt. I appear to live a nice life with a good salary,” Xiaoying told NewsChina. After she stopped paying her online debts in December, the loans she had taken out on several platforms became overdue and debt-collection calls flooded in, 20 on average every day. “If you miss a payment again, I will have to contact your family,” one lender threatened her over the phone. 　

Xiaoying’s story is not an isolated case for young people born in the 1990s or the 2000s, who are knee-deep in payday loans, finding a way out to be all but impossible. Growing up in the internet era, these groups are more receptive to using credit for everyday consumption, unlike their predecessors who would only take out a loan or mortgage for big ticket items, like a car or a home. Their desire to buy and consume outweighs their financial capability. As online finance thrives and loans are easy to obtain, young people borrow to cater to their immediate needs, be it small items like cosmetics or renting a high-end apartment. 　

These young consumers, accounting for 24 percent of the overallpopulation, are set to play a dominant role in China’s and even the world’s consumption picture in the next decade, according to a report from global research company Nielsen in November 2019 based on interviews with 3,000 young consumers. It found that 86.6 percent of people between 18 and 29 used credit products, among which loans for consumption purposes made up the highest proportion. Some 45 percent of the respondents are in debt, said the Nielsen report. 　

This new norm is not just an economic phenomenon, particularly when it involves excessive borrowing, extremely high interest rates, criminal loan traps and improper behavior in debt collection. It has caused many problems. The China Banking and Insurance Regulatory Commission, China’s banking and insurance regulator, issued a notice in December 2020 warning consumers of debt traps. 　

“Some platforms excessively promote advanced spending and enjoyment and package loan products, which can easily mislead consumers into unbridled consumption, particularly for people lacking due financial knowledge and young people without stable incomes,” said the notice. “It has caused a series of family and social problems.”　

After her monthly loan repayment, Xiaoying spent the rest of her first month’s salary on cosmetics and bags. After she reached the maximum borrowing limit on Fenqile, she applied for several bank-issued credit cards to repay the loan, using new loans to repay the old, a situation most online borrowers inevitably find themselves in. She started borrowing from other platforms to make ends meet and relied on loans to support her basic living expenses. Two years after graduating, Xiaoying owed 140,000 yuan (US$21,602) and could not afford to buy even the cheapest train ticket home, having to charge it to her credit card in the end. As the debt snowballed, Xiaoying, in desperation, turned to any lending platform available, usually small ones with a lower threshold for borrowing but higher interest rates. These lenders are often associated with coercive methods of debt collection. 　

Li Qiyuan, a 25-year-old man in Beijing who has been unemployed for almost a year, owes nearly 100,000 yuan (US$15,430) to financial platforms run by tech giants Alipay, JD and Meituan, to name just a few, as well as a number of banks. Looking back on his unrestrained consumption binges in the past few years, he describes himself as “a penniless man who developed the consumption habits of the middle class.” 　

After dropping out of college in Beijing, Li traveled to many places and worked many poorly paid jobs, including at snack stalls, as a deliveryman and a security guard at a garbage disposal center. Meanwhile, he frequented big shopping malls and bought fashionable clothes, copying the styles of web celebrities. He loved visiting famous restaurants and for a time indulged in going to beauty salons, spending far more than he could afford. 　

“Life is so boring that consuming becomes a big source of fun. It’s too easy to get a loan, so it’s easy to spend recklessly,” said Li, who has no idea how much he spent every month. 　

More and more young people are choosing to live a life of relative luxury beyond their means. They are a target of criticism for their vanity. “They buy whatever they want, a big difference from previous generations who prefer to live within their means,” said Liu Xiang, a financial industry expert who analyzed the 1,105 posts published in November 2020 in a group named “Debtor Alliance” on Douban, a social networking platform, where over 36,000 young debtors gather to comfort one another. He found that ���living beyond one’s means” and “online loans” are the most used phrases in the posts. 　

“People in their 50s and 60s were not encouraged to borrow to spend or even to invest. Those born in the 1970s and 1980s would only get a loan or mortgage for a car or a home. Now it’s common for the young to borrow just for everyday consumption,” said Chen Zhiwu, an economist and director of the Asia Global Institute at the University of Hong Kong.　

As several interviewed young debtors told NewsChina, it is too easy to get an online loan, particularly for young people. It does not matter what background or credit rating they have. They use the money for everything from educational training to plastic surgery or even buying gifts for their favorite livestreamers. While tempting people to borrow, lending and service platforms downplay the costs and hidden risks of being in debt. 　

In November 2019, Xiaomei, a college student who loves animation, saw an advertisement for a painting course on Bilibili, an online video platform popular with young people, that promised a fat income after finishing the course. She borrowed 10,000 yuan (US$1,543) from a lending platform and enrolled. However, she felt that the course, provided by Tanzhou Education from Hunan Province, was not as good as advertised, and struggled to get a refund. 　

“It usually starts with false but intriguing ads. If the students hesitate over the fee, they are tempted to get a high-interest loan,” said a woman who also fell victim to the company, speaking on condition of anonymity. “But it is difficult to get a refund once the [quality of the] courses come into question.” 　

The annual percentage rate (APR) charged on such loans is often above 10 percent. Xiaomei said it was an employee from the company who guided her to register on JD’s lending platform, where she filled in a false salary declaration to borrow more money. 　

It is common for consumers to get trapped by high-interest loans when they take out a one-off loan for something like a training course. These last for several months or even years at a claimed cheaper price, according to an analysis by the China Consumers Association in the third quarter of 2020. 　

The practice of excessive promotion or even glorification of spending beyond one’s means is an insidious problem, financial experts said. In a promotional video by JD Finance, JD’s financial arm, a man who appears to be a construction worker wants to buy an upgrade for his airsick mother on a plane but hesitates over the high charge. A man sitting in the back “helps” him out by using the construction worker’s phone to apply for a 150,000 yuan (US$23,145) loan from the platform “to save him from being laughed at by other passengers.” There are many similar ads online, emphasizing the ease and cleverness of using loans for people in financial straits. 　

Huang Zhen, a professor with the Central University of Finance and Economics in Beijing, said it is necessary to advocate for inclusive finance to make financial services accessible to people in need. “But after a certain point, it becomes an incentive to overspend,” Huang said, adding that money supply is not just a commercial activity and that fintech platforms should shoulder their social responsibilities. 　

A member of Debtor Alliance, the group on Douban, described the state of being indebted as an abyss. The lending platforms encourage borrowers to borrow more if they can repay the whole sum on time. If they cannot, they will allow installments, so people mistakenly believe that it is easy to repay the money. But high service charges and APRs easily draw borrowers who lack self-control into the abyss, several debtors told NewsChina. 　

Tang Long, a 28-year-old man who was stuck in debt for years, explained how one uses new loans to pay the old ones. “Once you manage to clear the debt on one platform, it authorizes a new amount which you can use to pay off loans on other platforms. But because the loan you can get on one platform gets smaller after the interest is taken out, you need to constantly explore new platforms to fill in the holes,” Tang said. 　

“Sometimes it took so much effort to get some money after strenuous stitching and mending here and there, it gave me the illusion that it was my hard-earned money, and I didn’t need to pay it back.” 　

“It’s a labyrinth and it’s hard to escape,” Huang said. Unlike credit cards that usually have an interest-free period, cash loans have no such buffer and it is almost impossible for many to cope with the ever-expanding repayments. “Some collapse under the pressure,” he said. 　

At the most difficult time, Xiaoying said she could not find even 300 yuan (US$46) to pay an installment. In crisis, she sold her mobile phone and took out an infamous “714 missile” loan, which comes due in seven or 14 days with high interest and overdue charges. For a loan of 2,000 yuan (US$309), borrowers need to pay back 2,500 yuan (US$386) in seven days with overdue charges reaching 5,000 yuan (US$772) a month, Tang said. “To reach this point, debtors are already at the end of their rope,” Tang said. 　

In December 2019, a 25-year-old woman from Anshan, Northeast China’s Liaoning Province killed her mother, then tried to kill herself in desperation after realizing it was impossible to pay back her loans.In February 2019, a 21-year-old woman from Xi’an, Shaanxi Province jumped to her death after having tried for three years to clear her loans. When she died, she still owed more than 100,000 yuan (US$15,430), her father discovered. In October 2020, a young couple killed themselves by burning charcoal in their rented room in Nanjing, Jiangsu Province. They were both from underprivileged families and involved in online lending disputes. Such tragedies have become more common and have considerably dented the reputation of the once highly regarded business. 　

Now that all his loans are overdue, Li Qiyuan said he has given up paying back for the time being. That is the attitude of many debtors after they tried in vain to clear their debts, NewsChina learned. Xu Shoucheng, who owes 410,000 yuan (US$63,263) to platforms because of out-of-control spending, said the constantly mounting interest makes him see no hope of “reaching the shore,” which in the parlance of debtors, means clearing their debts. 　

In the Debtor Alliance group, swindlers lurk in wait for a chance to cheat even more money from these young debtors by pretending to help, according to Xiaoying. The swindlers claim to provide services like helping them rebuild their credit rating or protecting their contacts from being harassed by debt collectors. “It is easy for desperate debtors to be tricked and fall into another trap.” 　

Xiaoying is still going all out to pay her debts, though it is tough. In 2018, a debt collector called Xiaoying’s mother after one loan was overdue, which put a lot of pressure on her. She stopped borrowing and quit her job in Dalian, Liaoning Province to go to Shanghai in July 2019 to earn more, and worked part-time jobs at night. But when her family needed money later, she started borrowing again after lending all her savings to her family. Following her mother’s advice, Xiaoying decided to put an end to the vicious cycle of using new loans to pay old ones. She stopped paying the lending platforms in December 2020 and is focused on repaying her credit cards first. “Now three quarters of my salary goes to paying debts. It will take me about three years to clear it at this rate,” she said. 　

“There’s no shortcut to getting ashore. The most important thing is to wean oneself off the habit of overspending and resist the temptations of online lending platforms,” said Liu Xiang. To quit her shopping addiction, Xiaoying has unlinked her credit cards from shopping platforms and only pays with cash. 　

Li Mengxi, who gets only 1,500 yuan (US$232) a month from her parents to cover her expenses at college, is busy tutoring in her spare time and on weekends. She’s trying to control her shopping and has limited her cosmetics and clothing purchases to the most basic and cheapest. 

When Li shared her debt story online, many offered to help clear her debts but she declined. After half a year, she has repaid over 14,000 yuan (US$2,160) and planned to find another part-time job over the winter vacation. “I want to choose the path that appears the hardest but actually is the most dependable – saving every bit on my own,” Li said.