Bad deals make U.S. bad guy in China
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KAI RYSSDAL: So far this year the U.S. trade imbalance with China — that is, how much more stuff we import from Beijing than we send over there — is almost $70 billion. That is down from the same stretch a year ago thanks mostly to the recession. But still, it means there are a lot of cargo ships on their way over here. Ships that are full of things Americans have decided they can’t afford anymore. And that in turn is making American consumers very unpopular among Chinese manufacturers.
From Shanghai, Marketplace’s Scott Tong reports.
Scott Tong: Yoshi Minamikawa owns a clothing factory in China. It exports to a high-end American department store and a U.S. men’s retailer.
He’s long seen the U.S. as the economic major leagues — and not just in the export sector.
Yoshi Minamikawa: If a Japanese director becomes famous, they will go to Hollywood. Everything. The baseball players, scientists, everybody goes to U.S.
But these days, Minamikawa is souring on American clients; he says they’ve been weaseling out of paying. They call him up and say this:
Minamikawa: Sorry, this season we are selling no good. So could you cancel it? Oh my god.
He spoke at a recent trade fair in Shanghai. More than half of the dozen or so factory owners we talked to say they’ve added American retailers and big-box stores to their bad-guy list. Now, this perception may not be fair. But more export deals to the U.S. have gone sour. By one estimate, Chinese companies lost $150 million last year because of American deals that fell through; that’s more than double the figure from the previous year.
Sometimes, the “Made in China” goods already have already shipped by the time a customer reneges. In other cases, Chinese factories have the finished product, but they’re stuck with it. So they call guys like David Dayton. His company Silk Road International can find another buyer in the States if the original party backs out.
Dayton says he’s a popular guy these days.
David Dayton: We’re seeing a lot of factories that are sending us emails, photos, lists of containers of goods that says, “We’ve got five containers of furniture that was supposed to go to a box store, they canceled the order, would you like any of it?”
These nightmares are making Chinese manufacturers more wary. A new survey from HSBC Bank found a “significant increase” in Chinese factories protecting themselves against shady deals. Some require more cash up front. Others ask buyers to submit what’s called a letter of credit: it’s a bank guarantee they’ll pay on time. Essentially, the message is: “We don’t trust westerners the way we once did: can I see some ID?”
For the first time, factory owner Bian Xianping is buying export credit insurance. That gives him his money back if his buyer walks away from the deal.
Bian Xianping: The insurance company checks the financial background of the American customer. Then it insures us against default, up to $70,000. We’re buying financial security.
Dayton: We’ve prior to this year, never heard of a Chinese factory doing due diligence.
Again, American importer David Dayton. He says it’s not just US traders who are getting a bad reputation in China. So is America’s broader economic model.
Dayton: The dollar hasn’t been strong for a few years, and so Chinese companies don’t want to do business in dollars any more. So that takes you down a little bit of a notch. The recession obviously led by whatever events transpired by Wall Street, that’s taken everybody’s perception of American down a notch.
Then there’s swine flu. Point of origin: North America, so stay out.
Dayton: They don’t want their factory quarantined for 10 days, just because an American showed up with a cough. All of those things, event by event by event, it’s certainly changing the perception.
Some economists think this perception is an early tremor in a global re-balancing of power away from the West. Others think it’s a temporary thing. Either way, importers and exporters in China are waiting for the U.S. to recover its economic mojo.
In Shanghai I’m Scott Tong for Marketplace.
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