Companies

Chinese sellers chase overseas debt defaulters

By Ariel Tung (China Daily)
Updated: 2010-10-28 10:26

Chinese suppliers of ceramics, kitchenware, gifts and other commodities talk with foreign importers at the 108th China Import and Export Fair (Canton Fair). [Photo / Provided to China Daily]

Foreign buyers are neglecting to pay for goods

NEW YORK - Chinese manufacturers are generating large volumes of goods for shipments abroad, but are also facing increasingly huge amounts of defaulted payments from foreign buyers.

The Sceptre Group, a debt collection agency in California, said the number of debts owed to Chinese exporters by US companies has risen by 80 percent in the past two years.

Figures from the China Chamber of International Commerce show that the amount of overseas debts owed to Chinese companies is at least $150 billion, with an annual increase of $15 billion over the past three years.

STA International, a debt collection agency in New York, said that the number of US debts it has collected for Chinese companies has risen recently.

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Cedar Financial, also known as TCM Group, has also seen an increase in such claims from China.

Amir Erez, president of Cedar Financial and chairman of TCM Group, cited three reasons: The economy has affected many US businesses; more trade is going from China to the United States than the other way; many Chinese companies do not know how to collect debts from overseas and so do not enforce debts due to the culture.

STA International's Chief Operating Officer Joseph Lonetto said Chinese companies can sometimes be too trusting of Western companies. "Most of the business transactions in China are done on credit," he said.

"They are old-fashioned. Unlike Western companies, they don't sell goods based on letters of credit security.

"They don't ask for credit reports to look into the buyers' financial standing and credit history."

Lonetto said that because Chinese companies conduct their business based on guanxi (personal relationships and trust), they are sometimes taken advantage of. He said it is crucial to get credit information about companies you deal with.

Richard Hart, general manager at Direct Recovery Associates, attributed increasing debts to the economic crisis, saying many companies anxious for sales would extend a credit line of as much as $100,000 to buyers. Five years ago, they would have been more careful.

Sceptre Group owner John Dunton said many small and medium-sized manufacturers in China are hurting because of the US and Europe.

The China Chamber of International Commerce said companies from the US and western Europe make up 50 percent of new defaults on goods from China.