Credit Crunch effects in China

The FT story makes the following key points:

– A rapid deterioration in the ability of Chinese companies to pay their suppliers “is significantly increasing the risk of doing business in China.”

– Chinese companies are facing “a liquidity crunch” due to China’s plummeting exports. “Many of them were also unable to access bank loans to tide them over the tough times, especially if they were small to medium-sized private businesses.”

– Though Chinese banks have “ample liquidity,” they usually do not lend to small private companies.

– Many Chinese companies have turned to their suppliers for credit, “thus forcing the pain up the supply chain.”

– Chinese suppliers are extending credit now more than a year ago. This is “bad credit management.” “Now is not the time to extend credit, it is time to restrict it.” “Most Chinese suppliers, however, have never experienced such a downturn.” “A lot of these companies never had to deal with the problem of not getting paid, because sales had always been increasing,” he said, “There’s not enough financial resource, not enough management.”

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