The disease is spreading fast ...
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Export-default claims soar to crisis levels
biz.scmp.com
Monday, July 16, 2001
ENOCH YIU
Hong Kong exporters are facing a payments crisis, with defaults in the first half of the year soaring back to levels not seen since the Asian financial crisis.
Claims for non-payment received by the Government-run Hong Kong Export Credit Insurance Corp (ECIC) totalled HK$47.04 million in the first six months this year, up 67 per cent on the same period last year.
The rate of growth in payment defaults is higher than at any time in the past 10 years.
Local exporters who purchased insurance cover from the ECIC can claim back the money from the ECIC if buyers fail to pay bills within four months of the due-date.
ECIC warned that there was an alarming number of "possible claims" in the pipeline. These refer to payments that have been delayed but have not yet reached the four-month default trigger.
The amount of possible claims registered with ECIC reached HK$111.39 million in the first half of this year, up 114 per cent on the same period last year.
ECIC commissioner Cheung Kam-kay said: "The level of claims and the level of defaulted payments are similar to the levels of the Asian financial crisis in 1997. We are obviously back to the peak of a default payment cycle."
Mr Cheung blamed the increase in payment defaults on the collapse of a number of import-export companies in the United States and Britain, which had been driven to insolvency by the economic slowdown in the US over the past six months.
Mr Cheung warned that the situation was more critical now than during the Asian crisis and said that unless the situation changed, some local exporters could be forced out of business.
"In the first six months, the buyers who failed to pay the Hong Kong exporters came mostly from the United States, Britain and China - Hong Kong's three largest trading partners," he said.
Payment defaults from buyers in those countries could have serious ramifications.
During the Asian crisis, companies in default were mainly from Asian countries, which have smaller trading contracts with Hong Kong exporters.
However, the US alone represented more than 30 per cent of the international market for local exports.
Mr Cheung said one of the most recent and most significant claims received by the ECIC came from a Chinese company that was owed HK$9 million in export payments.
The company, based in Shantou, Guangdong, is a state-owned enterprise that turned raw materials into plastic bottles.
The firm, which Mr Cheung did not identify, was now facing serious financial difficulties.
He said that, as with many of the biggest claimants to the ECIC, the company had been trading with companies in the US and Britain where corporate failures were increasing.
He said some of the biggest claims received recently by the ECIC from Hong Kong companies included:
HK$7.5 million default related to the collapse of US retailer Frank Nursery;
HK$5.4 million default related to the failure of US garment retailer Bugle Boy;
HK$4.3 million default related to the collapse of US toy distributor Applause;
HK$4.3 million default related to the collapse of Britain-based garment distributor Ciro Citterio.
"Some of these US and UK buyers have been large clients for local exporters for 10 to 20 years. Their collapse would be a big blow to the local exporters for the long-term," Mr Cheung said.
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