Debt collection in China

Today the Chinese economy is the second largest in the world, despite this, 50% of transactions are at Risk of non-payment. In addition, the Justice System is rather cumbersome, inefficient and not transparent

 In 2018, China’s GDP recorded a figure corresponding to 11.8 billion $US and the growth rate was + 6.8%.

The economic growth is a process that has lasted for years; In the last thirty years the Chinese economy has experienced a real economic boom, which has allowed the Country to become the 2nd largest economy in the world, to increase economic well-being and to push millions of citizens out of poverty.

The opening towards abroad, and the economic and social reforms undertaken,  have triggered a path of constant growth and with double-digit rates; just to make an example in 2016, the Chinese GDP stood at 11.2 trillion dollars, second only to the US and higher than that of Japan and Germany.

 

Recently, the government’s decision to reduce tariffs and regulatory reforms has boosted the economy. The document “18 months after Davos” – which sums up the thinking and ideas of the Chinese President – draws up a review of the reformist change announced by Xi Jinping at the World Economic Forum, in January 2017.

This report showed that – in the last year and a half – the reforms were the fastest since the time of Beijing’s entry into the WTO (World Trade Organization) in 2001.

There is still much to be done, but focusing on progress, there are four areas identified by the European Chamber of Commerce in China:

  1. Implementation of environmental protection standards.
  2. The bureaucratic simplification (and the cutting of waiting times by local administrations)
  3. Incentives for new research and development increasingly accessible to foreign companies
  4. The quality standards, the safety and the authorization processes of consumer goods that start to align with international ones.

Above all, the opening towards the International market has opened new business opportunities and levels the field between domestic and foreign companies.

However – about this – between December 2017 and July 2018 a considerable reduction in import tariffs has arrived, in some cases even over 50%. There have been many product categories concerned, whose common denominator was the increasing demand of medium – high consumers.

Among these, the Pharmaceutical Industry is the most relevant case; with 1.2 billion inhabitants, the aging population is blowing up the demand for care. According to experts, in 2017 China was the 2nd largest consumer in the world of medicines and its market is around 120 billion dollars.

According to the data for the first quarter of 2018 – issued by Deutsche Bank – the top twenty pharmaceutical companies in the world recorded sales up by 18% compared to the previous year. From 2018 to imported drugs, the company’s quality controls are sufficient to pass the customs – as a result –  many products have been exempted from tariffs and the VAT has been reduced from 17 to 3%.

China bought US$1.841 trillion worth of imported products down by -5.6% since 2013 but up by 15.9% from 2016 to 2017.

  • Electronic Equipment
  • Mineral fuels including oil
  • Machinery
  • Ores, ash, slag
  • Medical, technical equipment
  • Vehicles
  • Plastic,
  • Organic Chemicals
  • Oil seeds
  • Copper 

Instead, the Countries with whom it maintains close business relationships are South Korea, Japan, US, Taiwan, Germany, Australia, Brazil, but also Malaysia, Vietnam and Thailand.

The huge economic growth goes hand in hand with the Credit Risk. In fact, the Country Risk is high and the Popular Courts make the cause in China extremely complicated. Often, it is not so much the reliability of the Chinese customer as the fairness and reliability of the local justice system.

In China, there is frequent failure to comply with contractual provisions, and everyone is aware of the systematic tendency to counterfeit; the judicial system is rather cumbersome, inefficient and not transparent so it is always advisable to follow an extrajudicial debt recovery procedure, and leave the court as the last “beach” for the difficulty of implementation.

In summary, speaking of “hand data”, we can confirm that in China it takes 480 days to get a sentence, and the recovery rate is 37.5%.

In case of non-payment, the action begins with the sending of a warning, followed by a direct visit by the lawyer, to the debtor, who will try to increase the pressure by reasoning the debtor and trying to convince him to pay his debt; the threat of starting the procedure is often sufficient to get the payment.  In other cases, instead, the “reputational threat” is used as a negotiating lever.

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