Participants in an FCIB (Finance Credit & International Business) teleconference August 24th had an opportunity to learn important tips and facts about doing business in China. Julian Chen, COO, FCIB China, was the presenter. He has considerable experience and knowledge about the business, cultural and government environments in China. Chen discussed the growing stature of China as an economic juggernaut and how it has embraced capitalism despite its communist form of government. “China is becoming the biggest fan of capitalism.” He also said that although China traditionally has been a cash-based economy, both consumer and commercial credit are growing in importance and adoption by the consumer and business communities. However, from the perspective of business credit, Chen pointed out there are some shortfalls there, compared to the Western world.  In most cases credit and financial information on businesses is incomplete and not always reliable. However, the government (People’s Bank of China – editorial comment) is committed to, and engaged in, building a strong credit information system and already has a good database of information.

 Most companies do business with letters of credit, he added. Chen also stressed the importance of developing strong personal relationships when doing business in China — called “guanxi.” In the Chinese business world, however, guanxi is also understood as the network of relationships among various parties that cooperate together and support one another. It is this cultural difference that makes guanxi vital when trying to collect on accounts to make personal contact with appropriate officials in a business. Chen noted that collection agencies are illegal in China. Arbitration is very popular in China and provisions for it are often included in credit applications.

 Describing China’s economic landscape in a geographical context, Chen noted, “China is really a reflection of the whole world with regard to coastal cities—but the central portion of the country is less developed and the western section is still very poor.”  Chen closed by discussing the many advantages and benefits of joining FCIB, which includes valuable networking and educational opportunities. Source: FCIB China & Julian Chen

 BIIA Comments:  The People’s Bank of China has been instrumental in creating a central database of consumers and commercial enterprises largely fed by the banking system.  This is a significant effort in safeguarding the financial services sector, which is commendable.  However, as we understand it, private trade credit grantors have no access to it.  The People’s Bank of China does not believe that trade credit grantors require access to bank data.  When talking to trade credit grantors the answer is different.  There is a need to understand the entire financial exposure of a firm.  The comments about China having a ‘good database of information’ is unfortunately irrelevant in terms of trade credit, since trade credit grantors are precluded from having access to what is described as government information.  BIIA has been told that there are over 1,000 credit information and credit rating companies in China.  As we know there are perhaps less than ten credit information companies that are more prominent. The rest operate locally and are probably investigators lacking a large scale database.

BIIA Newsletter September – 2006 Issue