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2 China's debtors not paying
up By Olivia Chung
HONG KONG - A glance at the statistics
gives one the impression that China is now an
economic superpower, particularly in foreign
trade.
China becomes the fourth-largest
economy in the world in terms of gross domestic
product (GDP) in 2005. It is the world's
third-largest exporter after Germany and the
United States and is expected to become the
world's biggest exporter by 2010.
After
more than two decades of rapid development, China
has
become
an economic powerhouse, churning out a huge
variety of goods and exporting them to countries
all over the world, bringing in hard currency to
boost the country's economy.
China's trade
totaled US$157.36 billion in January, up 30.5%
year on year. Imports rose 27.5% to $70.74
billion, and exports increased 33% to $86.62
billion.
But for Chinese exporters, the
reality might be less rosy than what the figures
indicate, as they earn much less than booked,
facing overdue or default payment of their
overseas receivable accounts.
Although the
exact amount of overdue accounts receivable
overseas is not known, Han Jiaping, director of
the credit-management department under the
research institute of the Ministry of Commerce,
estimated that China has about $100 billion of
accounts receivable overseas and the figure is
growing by $15 billion a year.
Chinese
companies' bad-loan ratio is between 5% and 30%,
while the average in developed countries is about
0.25-0.5%, according to the People's Daily Online.
Geographically, overdue accounts
receivable, which have been concentrated in
coastal cities and special economic zones, are now
seen more and more in inland provinces, small and
medium-sized cities and areas lacking experience
in foreign trade,
The issue of overseas
accounts receivable first emerged in China in 1991
when the Ministry of Commerce and the world's
leading business and credit information provider
Dun & Bradstreet held a seminar about
international commercial accounts collection.
"After the seminar, more than 100 cases of
overseas debt collection services were required by
Chinese companies," Han said.
Of the cases
of overdue accounts receivable, China Changhong
Electric Appliance Co, a major television
manufacturer based in Sichuan province, became
known to the outside world when it was defaulted
$2.4 billion by a US company.
China's
major electric appliance maker started doing
business with its California-based distributor
APEX in 2001. Over the next four years, Changhong
delivered electric appliance products, mostly
color TV sets, worth $11.13 billion to APEX but
only a small proportion of accounts were
collected.
In 2002, Changhong's annual
report revealed that the amount it was owed by
APEX had reached 3.83 billion yuan ($495 million),
but business continued until 2004. Changhong lost
at least 2.6 billion yuan in unpaid exports to
APEX, creating a bad-debt ratio of more than 28%.
Besides, the company lost nearly all net profit
earned from 1998 to 2003.
An official of
credit insurer China Export and Credit Insurance
Co (Sinosure), the country's only insurer
specializing in export credit insurance, said in
handling some overdue accounts overseas, they
found that several exporters in various Chinese
cities were cheated by the same overseas buyer who
delayed payment, which has indicated that there is
a need among exporters in the country for better
information exchange and more stringent credit
risk management.
Liu Haishan, a founder of
US-China Assets Management, which helps Chinese
companies get overdue payments in the US, said:
"Cheating tactics used by some American companies
are of various types, enough to be compiled into a
record of cheating."
Liu pointed out that
there are three main ways of cheating: "First, an
unscrupulous buyer starts with a small order to
gain trust from Chinese suppliers, and then after
a few transactions, the buyer will make a big
order and leave without paying the bill.
"Second, some buyers simply take the goods
by taking advantage of Chinese companies that are
not familiar with the laws and regulations of the
US.
"Third, some Chinese firms are cheated
by a buyer who sets up a shell company."
However, industry experts also blamed
Chinese companies'
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