Manufacturers in Yiwu in eastern China’s Zhejiang province who have been doing business on credit have found many foreign business partners have fled the country without paying for their goods.
Around 70 small business owners in the area, famous for its small commodities trade, who have been doing business with a company called Arumaria Import and Export have divided themselves into ten groups to take turns to keep close tabs on the company’s office and accountant because its owner, a Sudanese national, has delayed payments for months and fled back to Sudan, according to the China-based Huaxia Shibao or China Times (not our sister paper).
His accountant, also Sudanese, left to extend his visa on Tuesday, creating panic among the Yiwu entrepreneurs who feared he would run away like his boss, who took a flight back to Sudan on Sept. 19 after he was unable to pay for the goods he had purchased on credit since February.
Chen Aizhen, an Yiwu entrepreneur who manufactures clothes, shoes and bags, said she sold shoes worth over 100,000 yuan (US$16,000) to Arumaria in April, for which the Sudanese owner paid in two installments after a short delay. In May, Chen sold another 100,000 yuan of goods to the firm but when she went to the company in August for payment, she found other creditors swarming the firm’s office also seeking the money owed to them, according to Huaxia Shibao.
The owner showed up at the end of August to pay back parts of the money owed and Chen received 20,000 yuan (US$3,200). The owner flew back to Sudan on Sept. 19, claiming he was returning to get the money to pay his creditors.
However, Xu Zhilong, the owner’s Chinese partner from Zhejiang province, likewise departed for Sudan soon after. The owner’s Sudanese accountant was also found trying to board a plane for his home country at Guangzhou Baiyun International Airport with a fake passport the owner had sent him in October.
The number of foreign businesspeople leaving China without paying for the goods they purchased has surged this year due to a poor economic outlook. Wang Huiling, a senior lawyer at a law firm partnering with local police, said most of the business disputes in the area involve foreign clients. Enterprises in Yiwu are accustomed to doing business on credit instead of insisting on cash, said Wang. Wang said they often neglect to take precautions such as examining the signatures and passports of their foreign partners or keeping copies of their passports. Some Yiwu businesses like to work with foreign nationals because they may assume they are trustworthy.
An Yiwu entrepreneur said foreign nationals can start a business in the city easily, renting a room and furnishing it with a few chairs, tables and computers. Disputes with them are often very complicated, however, and the lawsuits also take much longer and are much more expensive to pursue, so many businesses may choose to accept the loss, according to Huaxia Shibao.
Chen said doing business on credit places her at risk but in the current climate no foreign merchants are willing to offer cash up front.
The main business partners of companies in Yiwu have come from Europe and America, though due to the European debt crisis and the poor US economy, many companies have turned to the Middle East and African markets.