The detention of two Indians by Chinese businessmen has shed light on the tough, uncompromising and often lawless business environment in which foreign enterprises, lured by lucrative profits, operate in some southern Chinese trading towns.

Indian officials told The Hindu the fortnight-long kidnapping of Deepak Raheja and Shyamsunder Agarwal, accused of owing 15 Chinese suppliers more than 10 million RMB ($1.58 million) after the Yemeni owner of their company reportedly fled, was not the first such case involving Indians in this trading town.

Payment disputes

And, they add, it is unlikely to be the last. In recent years, Indian officials have received panicked calls from more than half a dozen Indian businessmen in Yiwu, Shaoxing and other trading towns in Zhejiang and neighbouring Guangdong province, after the traders were held hostage because of payment disputes.

“Perhaps this is a feature of doing business in the Pearl River Delta,'' said one official, referring to China's southern manufacturing and trading heartland. In one dispute in Shaoxing, an Indian businessman was held for more than a month, officials said.

Most cases are settled quietly with payments being made. Some traders even continue to work here after disputes are settled. Last month's case only came to light after an Indian diplomat, S. Balachandran, fainted at a court hearing on December 31. The two Indian traders had been held captive for 17 days before the incident. They had earlier tried to resolve the dispute by paying 900,000 RMB ($142,857) to their abductors, they said.

Chinese traders in Yiwu said in interviews that local businesses had begun resorting to extreme measures because of an increasingly difficult economic climate in the past two years, and as a result of either the unwillingness or inability of law enforcement agencies to solve many cases.

“We warn Indian and Middle Eastern traders that if you don't pay us what you owe, we have other means to get your money,'' said the boss of one Chinese supplier that is based out of Yiwu's sprawling Futian market.

Zhejiang and Guangdong are China's entrepreneurial heartland, where the country's economic reforms and opening up first began. They are also two provinces where businesses are known to have ties to a vast underground economy — known in China as the hei shehui, or black society — that emerged as the State retreated.

Turning to black society

“When police do not want to get involved, businesses turn to the black society to solve their problems,'' the local trader said.

Mr. Raheja said he believed there were black society or mafia elements involved in his case too. Some of the people who abducted and assaulted him, he said, were not his suppliers.

“They had hired people to torture us,'' he told The Hindu. When he arrived here last year, he had heard of cases of Indian and other businessmen being held captive as guarantors while disputes were settled. “But never did I think it would happen to me,'' he said. The emergence of the underground economy came to light in nearby Wenzhou, also in Zhejiang, late last year, when dozens of businesses closed and factory owners fled after being unable to repay debts to lenders, whose businesses mushroomed after banks tightened lending to curb inflation.

After thousands of workers were left without pay as bosses disappeared, the government introduced a newly revised law to criminalise non-payment of wages.

This followed a visit by Premier Wen Jiabao to Wenzhou and Shaoxing to assure local businesses and workers that their rights would be protected.

“Runaway bosses were a major problem during the last global economic crisis at the end of 2008 and it certainly seems to be happening again now,'' said Geoffrey Crothall of the Hong Kong-based China Labour Bulletin. Some, not all, disputes turn violent, he added, when bosses send in thugs to intimidate workers asking for due wages. Authorities have promised to crack down on both Chinese factory owners and foreign traders, who flee overseas with huge payments owed, to address concerns of local businesses. Officials have said they will also seek extradition of Chinese and foreign owners who abscond abroad.

In a warning to Indian businessmen, the State-run Global Times newspaper on Friday last said “they should obey rules''. “If they cannot get rid of their bad habit of defaulting on debts, both Chinese and foreign businessmen will keep away from them,'' it said in an editorial.

It also hit out at the Indian government's ‘narrow nationalism', saying the latest dispute was a confrontation between ‘ nationalist sentiment' of Indians and what it described as Yiwu's ‘steady market regulations'.

While businessmen in Yiwu might question that description, traders here say the city will remain an attraction for Indian businessmen in spite of the challenging climate - and a strong advisory issued by the Indian Embassy after the latest dispute - simply because there are profits to be made.

"Yiwu is a great place to do business, and there are few markets in China that are as thriving," said one trader from New Delhi who has worked here for eight years. "Most Chinese traders are friendly, and you can do good business. Only few cases end in trouble."

"But just make sure," he added in a word of caution, "you make your payments on time."