Call 01225 460388 for more information on Importing From China or email us @ onepointwo.com
Welcome to the UK's Specialists in Helping Small Businesses Import from China
ASSET RISK IN CHINA
The affects of the economic downturn are being felt no where more strongly than in the heart of the worlds production powerhouse of China. The country that has enjoyed double digit economic growth for years is now struggling to keep growth at the preferred 8% GDP level. In the last 12 months it is estimated that 22,000 registered factories in Zhejiang Province alone have gone out of business, and many more are expected to go the same way as demand remains low.
There are many direct and indirect consequences for the importer to
consider. Zhou Han, a lawyer based in Shanghai warns that importers
have very limited ability to check on the financial position of their
suppliers and valuable assets such as tooling could become tied up with
a company going bust. “With many foreign buyers currently trying
to minimise stock level, their vulnerability is increased if a supplier
was to cease trading. There is the potential of time consuming negotiations
to get tools removed and find alternative suppliers. Foreign companies
in such a position and no Plan B could be faced without product or components
for several months.”
Under the Enterprise Bankruptcy Law of People’s Republic of China a Liquidator will be appointed within 15 days, however, trying to then get the assets out of a factory can take several months. Practical issues such as locating the assets, often tools and setting fixtures, can be difficult for administrators to do, and the process is very difficult to conduct from abroad.
Maintaining close relationships with suppliers becomes vital at this difficult time and the small importer should conduct a strategic review of all overseas activity. Forrest Dong at One Point Two suggests the following key factors are considered:
- Focus on ‘Guanxi.’ The better the relationship, the more likely of a smooth transition if there is a problem.
- Consider dual sourcing. Independent sources of goods can be used thus minimising risk.
- Check contracts confirm full ownership of tools/assets and terms are in their relating to their release. Ensure all tools are clearly identified.
- Buyers should consider the cost and risk implications relating to the non-supply of goods.
- Buyers should consider indirect consequences, such as stability of subcontract partners to their direct suppliers.
The challenging economic outlook places huge emphasis on a reliable and flexible supply base and China still has enormous scope for UK directors as part of a well planned purchasing strategy. The exchange rate is slowly improving for UK buyers, and buyers looking for ‘added value’ services in China can still realise good profit.
Should you wish to discuss any of the points raised, or are concerned by your existing set up in China please call Alex on 01225 460 388.
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Asset
Risk in China
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