Important Strategies for Trading Into the Growing Chinese Marketplace

Analysts agree that China’s economy is in the midst of transitioning from investment-led growth toward consumption. With expectations of a 6.6% rise in GDP this year—compared with less than half that figure, at best, for European economies—China seems an obvious choice as an export market for many companies.

Still, China is not known as an easy country with which to conduct business; the World Bank’s Ease of Doing Business Index ranks it 84th out of 181 nations. “Foreign suppliers do need to understand the peculiarities of Chinese law—and the practicalities of selling to customers in China—when planning their export strategy,” noted analysts with credit insurer Atradius in a recent report about trading in China.

Before choosing a business strategy, it is important to obtain accurate economic data , as there are widespread concerns about the official data, said Shehzad Qazi, managing director of China Beige International, which produces the quarterly China Beige Book report.

Atradius analysts provided the following suggestions to help commercial credit professionals mitigate and optimize rewards when selling into China:

Stay up-to-date with China’s import regulations. The country classifies goods into three categories: prohibited, restricted and permitted. While China can’t import some goods such as toxic material, other goods have quotas or require licenses. For example, in 2015, China cut its quota for foreign cotton to boost demand for domestic production, Atradius explained. Look to the Ministry of Commerce (MOFCOM), which oversees foreign trade, for its published lists of restricted or banned goods.

Most goods are considered permissible to trade in China, but for some goods, like cattle and specific electrical products, MOFCOM supervises a licensing system to monitor these imports. Still other products, like crude oil and fertilizer, have to be imported through state-owned enterprises or other companies that MOFCOM approves to carry out such transactions, analysts said.

Also, while tariffs apply to most goods imported into China, they have been decreasing over time, Atradius noted. In 2015, the average Chinese tariff was 9.8%, while it was 15% in 2000. (For an annually updated tariff schedule, contact China Customs Press, Jia 1, East Fourth Ring South, Chaoyong District, Beijing 100023; telephone: 86 10 6519 5616.)

Take advantage of China’s free trade zones. Companies exporting to these areas may find lower tariffs or no duty at all. China’s first free-trade zone (FTZ), which opened in 2013 in Shanghai, focuses on financial services, trade, shipping and logistics. In 2015, three additional FTZs in Tianjin, Fujian and Guangdong were opened. The FTZ in Tianjin focuses on maritime and air logistics; Fujian on manufacturing and service trade; and Guangdong on manufacturing, leasing, and pharmaceutical and chemical products research and development, Atradius reported. Meanwhile, seven new FTZs have been approved to open this year.


FCIB European Summit

World-Class Education and Networking for International Credit and Risk Managers

November 13-15, 2016
Amsterdam, Netherlands
Steigenberger Hotel

There's Still Time to Register!

Summit highlight: With continued turmoil in the markets, FCIB is offering two educational sessions on country risk.

Country Risk: Latin America

As troubling news from Brazil and Argentina remains a cause for concern to world markets, panelists from across industries and areas of expertise will discuss the current and future risks of trading in key Latin American countries.

Country Risk: Trading Conditions in Russia

Conducting business in “sanctions-heavy” Russia requires informed sovereign risk analysis. Panelists will discuss how to mitigate risk, conduct business safely, and examine how perceptions of trade with Russia match the reality.

For more information and to register, visit

Nevada Supreme Court Affirms Suppliers’ Payment Rights, but Case Highlights Need for Conditional Releases

A recent case decided by the Nevada Supreme Court upheld a supplier’s payment rights. At issue, a disadvantaged business enterprise (DBE) gave the supplier a bad check that precluded enforcement of an unconditional release signed by the supplier to a higher-tiered contractor.

The case, which reversed a lower state court’s decision, illustrates the unforeseen consequences suppliers can incur when dealing with a DBE, including large losses for suppliers, general contractors and end users, said James Fullerton, construction and real estate attorney, of Virginia-based firm Fullerton & Knowles.

In Cashman Equipment Company v. West Edna Associates, Ltd., Mojave Electric et al, Mojave contracted with Western Surety to provide a payment bond for a project related to the new Las Vegas City Hall, according to court documents. Mojave accepted a bid from Cashman to provide specialty materials for the emergency standby power for the building. The general contractor, Whiting Turner, required Mojave to involve disadvantaged business entities in the project. Mojave thus contracted with Cam, a DBE contractor, and Cam contracted with Cashman. Mojave paid Cam for supplies and labor provided by Cashman.

In exchange for an unconditional release from Cashman to Cam and Mojave, Cashman received payment via a check from Cam, but Cam stopped payment on one check and bounced a second, court documents state. Cashman later filed a mechanic’s lien for $755,893.89, stopped working on the project, and then filed suit. The district court awarded Cashman only $197,051.87 for foreclosure of security interest and $86,600 for unjust enrichment to be paid after Cashman entered the codes of the electrical systems on the project. After the trial, the district court denied both parties’ motions for fees and costs.

In its ruling, the Nevada Supreme Court said that the purpose of the state’s mechanic’s lien statutes is to ensure “payment to those who perform labor or furnish materials to improve the property of the owner” and that Nevada’s “public policy disfavors the unconditional release in this case.”

Fullerton noted another important takeaway is that Mojave could have defended, in many states, a mechanic’s lien because it paid the DBE. “Mechanic’s lien litigation is a battle of innocents, and who is going to bear the cost of a DBE skipping town with the money,” he said. States vary on whether there is a “defense of payment” to a mechanic’s lien. Suppliers should be aware of these differences.

Also, suppliers should note that Nevada has a supplier- and creditor-friendly statute that allowed the court to void the unconditional release if the check to Cashman failed to clear, Fullerton said. But creditors won’t have this kind of saving statute in most states. They, therefore, have to make all waivers conditional “upon receipt and clearance of payment,” he explained.


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Registration closes Dec. 30, 2016
(Early Registration Deadline: Dec. 9, 2016)

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Jan. 9 - Mar. 31, 2017
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(Early Registration Deadline: Dec. 9, 2016)

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Jan. 16 - Apr. 16, 2017
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Terms of Trade Affecting Emerging Market Ratings

Shifts in terms of trade, the ratio of export prices to import prices, can weigh heavily on the sovereign ratings of emerging markets (EMs). The fall in commodity prices since mid-2014 has dramatically affected EMs as net exporters of commodities, and more problems are likely to come, a new report from Fitch Ratings predicts.

EMs experienced 13 sovereign ratings downgrades in 2015 and 18 so far in 2016. Terms of trade have declined by 20% between 2014 and 2016, Fitch estimated, based on adjusted United Nations Conference on Trade and Development (UNCTAD) and International Monetary Fund (IMF) data. Regions that have suffered the greatest declines include the Middle East and North Africa (MENA) and Latin America.

A reduction in terms of trade can stunt economic growth, fuel a public debt surge and create problems in foreign exchange (FX) reserves or exchange rates. FX experts told NACM last year that credit managers need to watch currency fluctuations more closely than in previous years.

Companies with receivables from foreign buyers must pay attention to the exchange situation “because it could impact them in a number of ways,” said Craig Schurr, senior vice president and manager of international banking at FirstMerit Bank. “It has real impact on the company if there’s a need to convert.”

Changes in terms of trade bear a strong relationship with sovereign ratings actions by Fitch. These correlations are strongest with main commodity exporting regions, such as sub-Saharan Africa, MENA and Latin America.

Though commodity prices appear to have passed their low point since they started falling in 2014, the negative trend in the sovereign ratings of EMs continues—16 sovereigns, half of which are heavily dependent on commodity exports, carry a negative outlook with Fitch. The full impact of the drop in oil prices can take time to feed through credit metrics, but the reduction in prices has been larger and lasted longer than expected. Many countries are still experiencing rising public and external debt ratios as they run twin deficits at current oil prices.

A slow recovery in commodity prices should, however, contribute to stronger economic performance. The outlook should start to brighten given the strong historical relationship between terms of trade and EM sovereign ratings, Fitch predicted.


FCIB Credit Reports, business credit report, business credit score

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Shipping Industry a Symbol of Mixed Economic Results

The latest release of the Federal Reserve’s Beige Book economic roundup Wednesday paints a picture of modest economic improvement in the United States, though performances and outlooks fluctuate somewhat significantly depending on the industry and region. Few industries reflect this better than the recently hampered shipping industry, within the United States and beyond.

Those in or downstream from the shipping industry reported a net decline in freight activity for a six- to eight-week period ending earlier this month, according to this week’s Beige Book release. The decline is being tied to excess capacity, lower shipments of energy-related costs and, perhaps most of all, weak exporting activity. The latter’s impact is reflected in the report’s manufacturing outlook in statements such as, “The strong dollar continued to dampen exports of manufactured goods.”

The Fed did note that improved traffic at some Eastern ports (Richmond and Atlanta) was less affected by the massive Hanjin Shipping bankruptcy, which remains in its early stages in South Korean and U.S. bankruptcy courts, among others globally. Heading into 2017, modest growth is predicted.

That dovetails with the findings of the latest Container Forecaster and Review, published by Drewry Shipping Consultants Ltd. Drewry analysts predict the shipping industry will stabilize in the new year, turning an expected $5 billion collective operating loss in 2016 into an overall $2.5 million gain next year.

“Hanjin’s failure is the culmination of several years of poor commercial decisions and mismanagement, not just by Hanjin, but the industry as a whole,” said Neil Dekker, Drewry’s director of container research. “But it did not necessarily signal a major tipping point for the industry. It was more a sideshow, as freight rates had crucially already turned a corner at the mid-year point.” He added that shipping-related contract negotiations and the possibility of consolidation are the industry issues to watch in 2017, much more so than Hanjin’s bankruptcy court developments.


mechanics lien, bond services, mechanics's liens

Lien Navigator Sale: $100 OFF*

Now thru Dec. 31, 2016. Regularly $400.

Credit professionals can rely on the Navigator to determine when and how action needs to be taken to protect lien rights across the 50 states, Washington, DC and Canada. The real-time Navigator ensures that you’ll always have current information. Specific questions are also answered for subscribers through the Navigator Answer Line. The Navigator is a web-based service, accessed through our website and available from any computer with Internet access.

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For more information, call Chris Ring at 410-302-0767 or visit

European Commission Shapes Proposal for Insolvency Law Update

About 200,000 companies go bankrupt in the European Union each year, according to the European Commission (EC). In response, the EC has revised EU insolvency regulations, effective June 2017, and has drafted a legislative proposal to help companies restructure businesses and creditors recoup loans.

“It will enable us to respond to recent trends in national insolvency laws and to address financial cross-border complications,” said Commissioner Věra Jourová in June at the 5th European Insolvency and Restructuring Congress. “For example, it reduces the possibility of forum shopping and it provides for ways to avoid secondary proceedings that can harm the chances of restructuring a company.”

The proposal includes an early warning system that triggers “external interventions,” such as from banks or accountants, as soon as a business shows signs of distress, according to a Reuters article. It also provides “a four-month grace period to allow companies to restructure without servicing their debt and tax repayment plans if they are pursuing genuine restructuring,” the article notes. “The plan aims to avoid lengthy litigation and bankruptcies and would rely instead on mediators and supervisors, while creditors will have a say in restructurings, with majority decisions removing the scope for minority shareholder holdouts.”

Jourová noted in her speech that bankruptcy proceedings can range from one to three years, depending on where the cases take place in the EU and that debt recovery rates range from 30% to 90%.

The commission is expected to release the final version on Oct. 25, and the Council of EU states and the European Parliament must approve it before it becomes law.

– Diana Mota, associate editor


Credit Learning Center, credit department, commercial credit training program

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We have the continuing education solution to fit your busy lifestyle. Sign up for courses in the Credit Learning Center, choose the subject and learning module you want, and learn at your own pace—wherever and whenever it's convenient for you.

Look for relevant business credit topics geared to improve job performance such as Business Credit Principles, Financial Statement Analysis, Commercial Collections and Bankruptcy and Construction Credit, or prepare for certification with Designation Exam Reviews.

Get started here or contact the NACM Education Department at 410-740-5560.

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