Economy

Firms warn against bad debts in overseas trade

By Bao Chang (China Daily)
Updated: 2011-05-12 09:35

BEIJING - Chinese enterprises should adopt stringent measures to safeguard against bad debts, as the proportion of non-performing assets is rising among companies involved in overseas trading, experts said on Wednesday.

"Due to fierce competition in the exports business, many domestic traders pay less attention to their buyers' credit records. They rush to offer customers favorable payment terms, which makes it easier for uninsured transactions," Chen Huanzhong, partner of Beijing-based Global Law Office, told China Daily.

According to Han Jiaping, director of the credit management department at the research institute of the Ministry of Commerce, Chinese enterprises said their overdue accounts had exceeded $100 billion by the end of March. The figure is expected to grow by $15 billion annually.

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The research institute of the Ministry of Commerce also said the markets where Chinese companies have traditionally faced bad debts due to high credit risks have spread to low risk countries, including Germany, the UK and Japan.

According to a survey conducted by the Ministry of Commerce, the bad-debt ratio of Chinese companies is as high as 5 to 30 percent.

In developed countries, the average bad-debt ratio is 0.25 to 0.5 percent.

Sixty-eight percent of Chinese enterprises with international trading had suffered bad debt abroad.

"To avoid overdue accounts from occurring especially when doing business abroad, the most effective way for Chinese companies is to be familiar with the international laws and the credit record of their foreign partners, because the cost of debt recovery will be expensive," Chen of Global Law Office said.

In the US, lawyers charge 20 to 25 percent of the total overdue accounts as commission, if they win the lawsuit.

"Another method of reducing business risks is to cooperate with a credit insurance company when expanding businesses abroad," Chen said.

"When the order amount surpasses 50,000 yuan ($7,700), I normally insure against overseas financial risks including the occurrence of bad debt with China Export & Credit Insurance Corporation (Sinosure), which charges 2 percent of the total award and ensures my business security abroad," said Huang Ruineng, a jewelry exporter in Yiwu city, East China's Zhejiang province.

Huang said the premium of overseas debt recovery charged by Sinosure is affordable and more Chinese companies should consult and seek asset protection. "I also prefer to make deals with old customers that have good credit records, even though their orders are smaller than some new customers, to guarantee real-time debt recovery," Huang added.

"Chinese companies should also strive to increase their awareness of overseas asset protection, as the international situation is becoming turbulent especially in Middle Eastern and North African countries where China has big volume of investments," Chen said.