Page 2 of
2 China's debtors not paying
up By Olivia Chung
neglect and inadequacies for their
high bad-debt ratio.
"Many Chinese firms
do not attach importance to overdue accounts
receivable overseas, preferring to swallow a
bitter pill in silence," Liu said.
US-China Assets Management had originally
planned to hold a "China-US debt-collection
seminar" in Shanghai in December, but delayed it
to this month. "Part of the reasons is at that
time only
18
Chinese companies made an application for the
seminar, fewer than the 100 that we expected," Liu
said.
Such neglect is rampant in Chinese
state-owned companies.
"Particularly when
state-owned companies experience senior management
turnover, successors usually leave 'unreasonable'
overdue accounts receivable overseas as accounts
receivable, worrying that those overdue would be
treated as bad loans, which eventually would
embarrass his predecessor and affect his work
performance," Han said. "That's why state-owned
companies do not take action even when accounts
receivable go even a year past their due dates."
Of the $100 billion of accounts receivable
overseas, 10% has been defaulted for three years,
30% for one to three years and 25% for six months
to one year, and 35% less than six months,
according to the Ministry of Commerce.
In
developed countries, the time limit for
enterprises' accounts receivable is generally six
months, and those overdue are treated as bad
loans. For many enterprises in China, however,
there is almost no time limit for accounts
receivable, and only if the debtors go bankrupt
will those overdue be treated as bad loans.
"The enterprises with better credit
management in developed countries have much lower
bad-debt ratio as the faster they take action, the
higher the chances of debt recovery. On the
contrary, some Chinese companies spoil their
buyers as they are afraid of losing customers,"
Han said.
Liu said it's a warning sign for
Chinese companies once an account receivable goes
60-90 days past its due date, and it is hard to
get the money back if the period exceeds three
years because of the possible loss of evidence and
management changes in the companies involved.
Besides, given intensified competition,
some small companies agree to unfavorable payment
terms in order to get business. "Many domestic
traders typically pay no attention to their
buyers' credit records and some even ship their
goods with just a telephone call or an e-mail," he
said.
Liu also attributes the huge
bad-debt ratios in Chinese companies to the cost
of collection. For example, lawyers in the Unites
States charge an average of $350 per hour and take
25-35% of the total award as commission if they
win the lawsuit.
Apart from setting up
their own credit-management departments to oversee
their accounts receivable, the exporters should
cooperate with specialized consulting firms that
provide credit reports.
Liu encouraged
interaction between China exporters and
international debt collection and consulting firms
like US-China Assets Management, most of which
work with law firms. "This is cheaper and more
effective than local exporters themselves chasing
debts," he said.
Another way is insuring
the goods with export and credit insurance, which
Sinosure provides to support China's trading
companies. Credit insurance could help reduce loss
of overseas trade by up to 90%.
Changhong
secured comprehensive insurance from Sinosure in
2005.
Besides offering insurance services,
including credit insurance, overseas investment
insurance, warranties and financing services,
Sinosure also helped improve Changhong's overseas
risk-management business.
Sinosure earlier
launched its first risk-analysis report covering
many countries and regions in the world in a bid
to help enterprises better hedge risks when doing
business overseas.
Emerging markets such
as those in Asia, Africa and Latin America are
still high risks for Chinese companies, although
they are major destinations for Chinese
enterprises.
Afghanistan and Iraq were
given Grade 9 last year, indicating that doing
business there carries the greatest risks.
"The biggest risks in those countries are
political turbulence, potential terrorist attacks
and changeable investment regulations," said Tang
Ruoxin, general manager of Sinosure.
Among
the 130 countries and regions rated, Luxembourg,
Andorra and Liechtenstein were granted the highest
rating, Grade 1, meaning they have the best
overall environment for doing business.
"Quite a number of smaller countries in
Europe won very good ratings this year," said
Tang. China's major trading partners, including
the United States and Japan, were given Grade 2,
the same as in 2005.
Sinosure, established
in 2002, provided insurance worth about $70
billion to China's export sector from 2004 to
2006.
Olivia Chung is a senior
Asia Times Online reporter.
(Copyright
2007 Asia Times Online Ltd. All rights reserved.
Please contact us about sales, syndication and republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
