China Business in a Down Economy

China economy

In the last few months, our China lawyers have been seeing shifts in what is happening to Western companies that are doing business in China or seeking to do so.  Among other things, we have noticed the following:

1.  An increased number of people contacting us regarding problems with their China manufacturers. In far too many instances, the problem is that the Chinese manufacturer has not provided any of the product ordered or has provided only half of it. I find these phone calls and emails frustrating because much of the time the caller/e-mailer has no recourse that makes economic sense. I very nicely told this to a caller today who is out about USD$40,000 and she went into a long diatribe about how nobody in China can be trusted and how America needs to bring its manufacturing home. I tried to steer her into a more productive conversation and she then revealed there is “one” company in China that can be trusted because she has had a great relationship with that company for about a decade. Anyway, the best advice we can give to prevent these sorts of situations is to do your due diligence on the factory, pay as little as possible upfront, and have a good China Manufacturing Contract.

2.  Some of our commodity clients (paper, iron ore, etc.) are telling us about Chinese buyers cancelling their contracts or seeking to renegotiate. Last time we “saw” this was back in 2008.

3.  Chinese companies are starting to “market” to our clients. A couple clients told me their Chinese manufacturers were contacting them to offer steep discounts if they would order larger quantities right away.  Both clients said this was the first time this had happened. I warned them to be very careful. See China Smells Like 2008: The Gloom and Doom Edition.

4.  Access to public China business records has been curtailed. Not sure if this is directly related to the economy, but it may be.

What are you seeing out there?

5 responses to “China Business in a Down Economy”

  1. Your advice is “to pay as little upfront”. And compromise your quality. You need to treat Chinese fair not as if they are looking to rob you Americans all the time. Your advice is scaring and not good business practice and not dealing with the repercussions or practicalities of your suggestions.

  2. Dan,
    Granted, like you we often only see the bad stuff, but our fraud investigations practice is going nuts in China. It seems that MNCs are hunkering down and looking for ways to be more efficient and sustainable, to protect what they’ve worked so hard to build.

  3. Due diligence, be nice, not more credit negative to your suppliers and have a good accountant on hand to make sure you’re not being diddled. Old China hands have been through this before.

  4. @8c7ce3d7967c35afa7c0b4c87b247ce5:disqus 
    And yet, as you are asking him to be fair and trusting, your post name loosely translates to “%^&$ your grandmother”.  
    That is why you are not trusted, nor respected.  Americans are not as dumb as you think, we see right through you and treat you as you deserve to be treated.  

  5. I’m reading Kai Ni’s comment and wondering if I wasn’t at my factory, making sure the quality was something other than trash, would paying them more take care of this.. Nope. I bet for the majority of factories in China wouldn’t produce better if you paid more. Perhaps in the materials department, yes. But in the worker department, in my experience, paying them more doesn’t make the common worker to produce better good. It just keeps them from striking and asking for more money in the short term.
    Think about it. No one cares about the quality of your product but you. You are the one that has to make sure it up to your standards. Take the money that you would of paid upfront, and hire a qc consultancy, or fly to the factory before, during, and after production and before shipping. That will give you more of an outcome rather than giving the factory 50% instead of 20%. The only thing that will do is make the factory boss that much closer to paying off his BMW. That 20%, in most factories, isn’t going right to production. Not even close.
     

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