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Money, money, money
Money, money, money
Mathieu Chabrant

PARIS — What if the very different Chinese approach on debt held the key to a solution for the crisis of public finances in the West. In Europe and North America, the notion of a contract holds a central role: Whoever borrows money has to pay back, no matters the circumstances. Chinese people instead tend to give more value to the word given, conferring to the debt a human and social perspective as they take note of such questions as: Who borrowed? In what context?

These two fundamentally different points of views are the fruit of history and culture. For many economic historians, the roots of capitalism lie in the explosion of excessive debt. After Christopher Columbus's first conquest in 1492, merchants and bankers started subsidizing subsequent expeditions, the first illustration of Public-Private partnerships. Because they were over-indebted, these European explorers turned to the widespread use of violence and slavery. Exploiting local craftsmanship without any cost was the best way for them to make sure their debts would be paid back.

Chinese also led expeditions to the West at the beginning of the 15th century. But as the conquests were financed by the Empire, explorers did not have to fall into debt and resort to violence to monopolize the resources of the new territories.

Debt is perceived through a human point of view.

Beyond these historical factors, we can add another cultural one related to the Asian perception of humankind and society. Indeed Chinese culture considers planning as a weakness. Flexibility, then, is the key for any successful exchange. The adaptability to circumstances leads Chinese people not to complete a contract if the context has changed.

For Westerners, not paying back debts is considered an objective flaw: Standard contracts grant the creditor some kind of law enforcement and moral superiority over the borrower. Renegotiating the debt contract usually includes a form of violence, as the creditor imposes its power and influence over the debtor. One example of this scheme can be seen in the behavior the European Union and International Monetary Fund adopted in relation to the Greek crisis. The country was put under trusteeship by powerful institutions, triggering heavy social consequences.

Chinese stock exchange Photo: Zhenyi Xie/ZUMA

To the contrary, Chinese practice sees the refusal to renegotiate in business relationships not only as an affront, but also as the negation of the cycle of nature and the essence of the world itself. This social conception of debt requires that we admit the contract can be modified, beyond usual clauses of "force majeure." The contract keeps a central position, but debt is perceived through a human point of view which favors discussion and adaptability.

Concretely speaking, a breach of loan covenant can have multiple causes that don't necessarily have anything to do with a risk of bankruptcy, and this kind of situation calls the two contracting parties for reconsidering the terms of the contract. It requires permanent talks and an important proximity between the creditor and the debtor that allows flexibility in the conditions of the arrangement. As Taoist philosopher Guo Xiang once said, "What wise men did belongs to the past and is thus not suitable for the current situation."

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