Thu, Apr 09, 2009 - Page 12 News List

Suppliers hit by overdue payment crisis in China

By Joyce Huang  /  STAFF REPORTER

Amid the economic downturn, 91 percent of surveyed Chinese suppliers said they suffered from overdue payment last year, with an increasing number of buyers paying late, a credit management services company said yesterday.

Some 71 percent of respondents said private companies were the most risky buyers while state-owned Chinese corporate buyers were perceived risky by 17 percent of suppliers, compared with 23 percent two years ago, Coface said, citing the survey.

Nevertheless, state-owned Chinese companies were also delaying their payments by as much as six months past the due date, Coface deputy regional managing director Xavier Farcot said.

On whether it was risky to do businesses with fully owned foreign enterprises — especially those from South Korea, Hong Kong and Taiwan — operating in southern China, 4 percent of respondents said that it was last year, up from 1.8 percent in 2007, Farcot said.

The survey, based on 556 valid questionnaires, attributed suppliers’ defaulted payments to financial difficulties experienced by buyers, which were either affected by fierce competition, lack of financial resources or rising raw material costs.

Geographically, about 28 percent of surveyed companies in central and western China had overdue payment by more than 90 days last year, the highest in China, which Farcot described as a warning sign for foreign or Taiwanese businesses planning to relocate to inland provinces for low-cost production.

The survey also found that telecommunications, information technology, household electric and electronics sectors as well as the construction industry in China were the top risky industries in terms of overdue payments.

To tackle the trade risks in China, Farcot urged China-based companies to restrict credit to buyers by setting standard payment terms for less than 90 days and no more than 120 days for maximum terms.

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