Credibility is eroded by defaults

Translated from China Business News

Borrowers that can pay off their debts in accordance with the terms of their initial contracts show their credibility.

Indebted enterprises and governments should keep that simple fact in mind.

Both businesses and governments are important contributors to society. If they set bad examples, society as a whole will lose some of its credibility.

Recently, the media exposed a couple of cases related to indebted businesses and governments. In one, a construction company in Dali, Yunnan province, defaulted on payments it owed to migrant workers who had encouraged their children to protest outside of the company’s gate. Elsewhere, the official grain procurement department in Mengjin, Henan province defaulted on a payment of 70,000 yuan ($11,111) it had owed to a farmer for 11 years.

In both cases, media reports about the creditors’ plight helped them get their money back. The worst losses, in fact, were suffered by the government and company that had defaulted.

Not only did they put their credibility in danger, but the cost of their behavior will accumulate and possibly exert a harmful influence on all of society.

Governments are expected to set a good example by maintaining their credibility and honoring contracts. Otherwise, the goal of improving social morality will prove impossible to reach.