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China Burdened with USD 100 Billion Overdue Accounts Receivable

Source: Peoples' Daily Online, March 30 2005

This is learned at a seminar held recently on account receivable management and credit development in international trade.

With an export and import volume of over US$one trillion in 2004, China has become the world's third largest trader following the United States and Germany. At the same time, a large number of private enterprises and share-holding enterprises acquired the right to export, emerging as a new force with rapid growth of export.

However, at the same time, the bad-loan ratio of Chinese importing and exporting enterprises is disturbingly high: at least five percent. In the year of 2004, China saw around US$25 billion of new overdue accounts receivable.

According to Mei Xinyu with the Research Institute of Ministry of Commerce, there is no official statistics on China's overseas accounts receivable yet to be recovered.

Han Jiaping, director of the credit management department under the Research Institute of Ministry of Commerce, provided an estimation: China now has about US$100 billion of accounts receivable overseas and the figure is growing by US$15 billion each year.

Han stressed, China's financial system of enterprises is not as strict as compared in developed countries, where the reasonable time limit of an enterprise's accounts receivable is generally three to six months, and those overdue will be treated as bad loans. However, it is very common in China for accounts receivable to remain unpaid over two years and relevant information is not open to public. There is stipulation only for listed companies: if their accounts receivable are overdue for more than two years, they must release relevant information. The problem with China's Changhong Electric Appliance Co. Ltd was known to the outside only when it was defaulted US$4.2 billion by a US company.

It is learned that China's bad-loan ratio is far higher than the 0.25 percent to 0.5 percent, the average of developed countries. The figure in some enterprises can reach as high as 30 percent and the term of the overdue debts of Chinese enterprises is relatively long.

According to relevant information, in the overdue accounts overseas, 10 percent has been defaulted for three years, 30 percent for one to three years and 25 percent for half to one year and 35 percent less than six months.

The overseas accounts receivable of Chinese exporting enterprises is still rising at an annual rate of US$15 billion. Geographically, overdue accounts receivable, which were concentrated in coastal cities, economic zones, and nowadays, are more and more seen in inland provinces, medium-sized and small cities and the areas lacking experience in foreign trade.

The large amount of overdue accounts receivable overseas will offset the actual efficiency and benefit of China's economic and trade activities, said Zou Xiangqun, head of China's credit professional commission.