Bad debt burns hole in pockets of city's exporters

PUBLISHED : Friday, 11 July, 2014, 1:31am
UPDATED : Friday, 11 July, 2014, 11:46am

The number of Hong Kong exporters carrying bad debt climbed sharply to as much as 45 per cent this year from just 32 per cent last year, according to the findings of a new survey by the University of Hong Kong.

The mainland carried more bad debt than any other country for the fourth consecutive year, and it contributed to 42 per cent of the overdue money owed to Hong Kong exporters.

Cobe Tsang, managing director of financial service provider and debt collector EOS Hong Kong, which was the organisation that commissioned the survey, said the city urgently needs a buyers' database to track those with poor payment records.

"The government or trade associations may consider setting one up, so as to relieve us of problems and inhibitions regarding bad debts," said Tsang, noting the recent increase in the payment deferral period to 69 days from 50 days. "The longer the payment deferral period, the higher the risk of bad debts."

These debts account for 2.5 per cent of the revenue of exporters. The overdue period of bad debt on average is 174 days, which is 26 days shorter than last year. Most exporters classify a debt as bad when the payment is overdue for more than 120 days.

The percentage of bad debt from the mainland, Hong Kong's biggest trading partner, has slightly decreased by 2 percentage points from last year, but mainland Chinese companies remain the largest source of bad debt for Hong Kong exporters.

In contrast, the percentage of bad debt from another major trading partner of Hong Kong, the United States, dropped by almost half to 8 per cent.

Within the mainland, companies from Guangdong carry the highest percentage of bad debt, contributing to 23 per cent of such money owed to Hong Kong exporters.

"In recent years, more Hong Kong exports shifted from Europe and the United States to mainland China, as the economy in Europe and the United States became sluggish and growth on the mainland remains robust," said Yu Pang-chun, a general committee member of the Hong Kong General Chamber of Commerce.

The survey found that the electronics and components sector is the industry with the largest amount of bad debt, contributing to 16 per cent of overdue payments. The second largest industry with a bad debt problem is garment manufacturing.

Up to 63 per cent of the companies surveyed favour establishing the database, while 68 per cent have not implemented any policies to monitor and control credit risk.

The survey also found that around 70 per cent of companies held their employees responsible for debt recovery.

The survey was conducted by the public opinion programme at HKU, which interviewed 500 exporters in Hong Kong in May.