Credit Risks on the Rise for SMEs

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The credit firm Coface has highlighted risks for smaller foreign firms in the China market. The company has noted a high level of credit risk as private Chinese companies suffer loss of margins due to rising prices for raw materials and energy, combined with strong competition. A report in the FT notes

    “An alarming signal is the sharp increase in the number of Chinese companies delaying payments by up to one year to European suppliers. The number of Chinese private companies defaulting on payments also doubled last year over 2004.”

    Mobile telecoms and household appliances are currently the sectors exposing European companies to the highest risks, notes Coface. This follows the collapse of the Chinese telecoms equipment maker Soutec and the bankruptcy of the country’s leading refrigerator maker Kelon. But Coface warns of growing difficulties in cars and computer hardware.

    This cautionary tale is by no means designed to deter European companies from the Chinese market, but rather to sharpen their awareness of potential pitfalls.”

We have also posted recently on the issue of payment terms and associated risks. See here for full details.

See news source:

    Coface seeks to cool the Chinese pot of gold
    All that glisters is not gold in China. The warning comes from Coface, the world’s leading export credit insurer with a long record of monitoring Chinese risk. The… | (subscription required)

    China Business Services provides a range of risk management services, including supplier due diligence and credit checks.

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