A LEADING Hong Kong shipowner has joined the list of companies getting tough with slow-paying mainland enterprises. Wah Kwong Shipping has warned that unless China's steel mills pay on time they will have difficulties chartering ships and raising money on the international market to build ships. Wah Kwong managing director George Chao said some mainland steel mills, facing financial difficulties, were way behind in paying for goods and services. He cited the case of Charter Capital International, which was sued by Wah Kwong to recover US$196,000 for chartering its ships last year. Charter Capital International was acting on behalf of Wuhan Steel, one of China's largest steel manufacturer. Following a court order, Charter Capital paid some money in monthly instalments but then said it could not pay any more. About $100,000 is still owed. Mr Chao said that although the amount owed to Wah Kwong was not big, the situation was worrying because other shipping companies faced similar collection problems. It is estimated that shipping companies doing business in China are owed more than $2 billion by shippers. China Ocean Shipping, China's largest shipping company recently revealed that it was owed nearly $500 million and payments due to Panavico, another large shipper, are understood to have reached similar levels. Although foreign shipping companies are not very vocal about the issue, it is understood that their combined outstandings total more than $1 billion. He blamed the situation on China's triangular debt problem, whereby state companies owe large sums of money to each other but have no cash to settle the accounts. Non-payment to international companies was doing a lot of damage to the reputation of China's steel mills. Mr Chao said: 'If this situation continues, China will not be able to fulfil its ambition of overtaking Japan as the world's largest producer of steel.' Mr Chao said he hoped something could be done to improve the situation and induce Chinese companies to play by international rules. Wah Kwong has not chartered any ships to Wuhan Steel or its associates this year. 'When the market is bad, you take all the business you can get, but in a good market you can pick and choose your customers,' Mr Chao said. 'We will look for adequate security before chartering our vessels to Chinese companies because guarantees given by the steel mills are not coming good.' Wuhan Steel is among 22 large Chinese enterprises that were given the green light to list their shares on international stock exchanges this year. To become competitive, managers at Wuhan Steel last year pushed 70,000 of their 120,000 workers into eight subsidiary companies and told them that ultimately they would have to fend for themselves. Wuhan Steel's customers, many of them other state industries, are more than $500 million behind on payments for goods delivered, forcing Wuhan Steel into a cash-flow crisis. Management has delayed crucial investments in new equipment and has run up $345 million in debts to its suppliers. China's cycle of debt is the greatest reminder that the country's 11,000 large state industries are not healthy and that as many as two-thirds of them are surviving on central bank loans booked as 'income' to finance operations and payroll. When the loans are cut back, as they have been this year, the debt chains link one factory to the next in a game of payment deferral.