It only takes a $7,000 debt to end up trapped in China

ALEXANDRA CITRIN-SAFADI/WSJ, ISTOCK
ALEXANDRA CITRIN-SAFADI/WSJ, ISTOCK

Summary

Exit bans have left foreign executives stuck inside the country—often with no idea when they will be allowed to leave.

HONG KONG—An American executive who lives in China went to Shanghai Pudong airport six years ago for a routine business trip to San Francisco. When he tried to cross the border, he was told he wasn’t permitted to leave China.

“You know what you did," the border officer told him. He tried another airport and got a similar response.

The executive has been stuck in China ever since. He was the target of an exit ban, a legal tool used by Chinese courts that has left numerous foreign executives trapped inside the country—often with no idea when they will be allowed to leave.

The vast majority of exit bans aren’t applied to people accused of a crime but to those involved in civil litigation, usually business disputes. Even foreign nationals who aren’t personally liable or who left a company years before it got involved in a dispute have been subject to these bans.

China’s government is in the midst of a charm offensive to attract foreign companies and businesspeople after a series of company raids and detentions last year scared off executives and raised serious questions about the risks of doing business in the country.

But Beijing hasn’t attempted to address one of the big risks facing foreigners working in China: the chance they might not be allowed to leave.

The American executive’s story was a textbook case: He had been the general manager of the Shanghai subsidiary of a European company. In 2016, the company’s headquarters stopped sending money to its Shanghai unit, making it unable to pay monthly salaries. The executive tried and failed to raise money from inside China. Many of the company’s employees sued; at least one asked the court to impose an exit ban on him.

China has been using exit bans for years, leading to high-profile cases involving senior bankers, lawyers and business owners. But the details of how widespread these bans are—and how little it takes to fall afoul of Chinese courts—are murky.

The Wall Street Journal conducted a search of an online court database that included millions of documents and turned up 37 cases of foreign nationals hit with exit bans. Lawyers say the real number is much higher, and academics have found more than 150 cases.

The cases in the court database include Americans stuck in China for missed payments or failed debts, a Taiwanese restaurant owner who got into a disagreement about share ownership with his German co-owner, and an Iranian businessman unable to leave the country for months because he owed an employee $7,000. Those contacted by the Journal declined to comment or even confirm their experience—even those who eventually managed to leave China.

Business disputes

Harry Clifford Villers appeared to time his move to China perfectly.

In 2001, the country became a full member of the World Trade Organization, cementing its place as a global trading giant and ushering in decades of economic growth. Villers, an American citizen, moved to China the same year, according to his LinkedIn profile.

He ended up at SureHeat Manufacturing Suzhou, a manufacturer of ovens and fireplaces. In 2014, the company went bankrupt and, two years later, Villers was hit with an exit ban.

China’s legal system allows the plaintiff in any standard civil or business dispute to ask the court to impose an exit ban on the defendant. This is usually after a verdict has been reached, but not always. If the defendant is a company, the exit ban can be placed on the company’s legal representative, a responsible person or a senior manager.

Those subject to an exit ban have their names added to a national database that police check at every airport and train station. They often don’t know about an exit ban until they travel—and sometimes aren’t told why they aren’t allowed to proceed.

In civil disputes with foreigners in China, exit bans shift the balance of power so that one party holds all the cards, said Jack Wroldsen, a business-law and public-policy professor at California Polytechnic State University, San Luis Obispo.

Sometimes exit bans are imposed on highflying executives or those who have borrowed large sums. Charles Wang Zhonghe, a senior executive at Japanese bank Nomura, was unable to leave China after a business trip last year and was cooperating with an investigation, according to people familiar with the matter. Michael Chan, a Kroll executive, was also the subject of an exit ban last year, the Journal reported.

Hu Xiaobei, a U.S. passport holder, faced an exit ban after she and her husband borrowed more than $450,000 from a friend that they were unable to repay, according to the court documents seen by the Journal.

Hu argued in court that the ban put her in a Catch-22 situation: She needed to earn the money to pay off their debt, but she wasn’t allowed to work. She asked the court to let her go back to the U.S. to raise the money. Her request was denied.

Just as often, the bans are imposed on owners of relatively small businesses or those involved in personal disputes.

Wu Jun, an American citizen in his late 50s, was given an exit ban in 2017. The problem: He had been the legal representative of an electronics company five years earlier. When a court ruled that the company owed $8,150 in salary and other payments in March 2016, Wu was still listed in the corporate register

Wu claimed he didn’t know that the company hadn’t updated the name of its legal representative until he was stopped at the border. He was told he couldn’t leave the country until he provided financial guarantees or until this dispute was settled. He appealed and lost.

People facing exit bans often exist in a legal limbo. The American executive who was stopped at Shanghai Pudong airport can’t get a job. His lack of paperwork meant he couldn’t get a vaccination during the Covid-19 pandemic. He has long overstayed his visa and carries a court letter with him everywhere to explain why.

Renewed fear

Exit bans show how corporate and personal liabilities can become muddled in China’s legal system, said Dan Harris, a partner at Harris Sliwoski who specializes in international law and has written about the use of exit bans and debt hostages in China. Although China allows businesses to operate as limited liability companies, when it comes to exit bans corporate liabilities can quickly become personal ones.

China’s use of exit bans has become a headache for U.S. diplomats, adding to the long list of disputes between China and the U.S. But Washington has limited options to challenge exit bans, even when they involve American citizens with relatively meager debts.

“There’s basically nothing that can be done about exit bans, because they are legal in China," Harris said. “The amount owed does not matter. It could be really small."

The U.S. Embassy in Beijing wrote a letter to China’s Foreign Ministry in 2017 expressing concern about the numerous cases of Americans being subject to exit bans, according to a copy released in 2022 under a Freedom of Information Act request made for a study by Wroldsen and Chris Carr, another professor at Cal Poly.

The U.S. government has disclosed some data related to exit bans in China under the FOIA request. The State Department revealed 30 cases of exit bans between 2010 and 2019, citing information from the U.S. Embassy in Beijing.

One ban was imposed in June 2017 on a managing director of Citadel Securities and the board chairman of its Shanghai affiliate. The executive, a citizen of both the U.S. and China, was unable to leave the country for 35 days. Another businessman was told in December 2019 that he couldn’t leave China until his prior company had been dissolved.

Once an exit ban is imposed it can be automatically renewed as long as the debt is unpaid or the case is still outstanding, said Li Shu, a partner at Yunting, a Beijing-based law firm. There is no limit to how long an exit ban can last, he said.

Three years ago, Sen. Edward Markey (D., Mass.) and other lawmakers introduced legislation to deny visas to any Chinese officials involved in formulating or executing the exit ban policy. The bill didn’t become law.

In a statement to the Journal, China’s Foreign Ministry said it welcomes citizens of all countries to visit for tourism and business purposes, and safeguards their safety and their legitimate rights and interests, including freedom of entry and exit.

“At the same time, China is governed by the rule of law, and the judicial organs handle cases in strict accordance with the law, restricting the exit of foreigners with pending civil cases or suspected of having committed crimes," it said.

China’s Ministry of Public Security and the National Immigration Administration didn’t respond to queries.

Write to Rebecca Feng at rebecca.feng@wsj.com and Elaine Yu at elaine.yu@wsj.com

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