Many Chinese companies ‘will go bankrupt’, if US delivers on tariff threats, court newspaper warns

Judiciary must ready itself for possible fallout from China-US trade row, mouthpiece of Beijing’s top court says

PUBLISHED : Wednesday, 25 July, 2018, 4:53pm
UPDATED : Friday, 27 July, 2018, 1:07am

China’s judiciary should prepare itself for a possible spike in the number of corporate bankruptcy cases as a result of the trade dispute between Beijing and Washington, state media warned.

In an opinion piece published on Wednesday by People’s Court Daily, Du Wanhua, deputy director of an advisory committee to the Supreme People’s Court, said that courts needed to be aware of the potential harm the tariff row could cause.

“It’s hard to predict how this trade war will develop and to what extent,” he said. “But one thing is sure: if the US imposes tariffs on Chinese imports following an order of US$60 billion, US$200 billion, or even US$500 billion, many Chinese companies will go bankrupt.”

As Chinese courts have yet to have any involvement in the trade dispute, the fact that the newspaper of the nation’s top court, ran an opinion piece – for a judiciary-only readership – suggests concerns might be rising in Beijing about the possible socioeconomic implications of the row.

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Du said the judiciary should also quickly familiarise itself with the possible complexities of such cases, which are probably unlike those they have handled in the past.

“Preparedness ensures success. Unpreparedness spells failure,” he said. “Our courts need to look into these possible Chinese corporate bankruptcies as early as possible.”

The world’s two largest economies have so far imposed 25 per cent tariffs on US$34 billion worth of each other’s imports, with reciprocal duties on a further US$16 billion of goods expected to take effect soon.

Washington has also threatened to impose 10 per cent tariffs on an additional US$200 billion of Chinese imports, with Beijing saying it would counter with “qualitative and quantitative measures”.

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The tit-for-tat dispute escalated against last week when US President Donald Trump said he was prepared to add tariffs to almost all Chinese imports, or about US$500 billion worth of goods based on last year’s trade.

A spokesman for the Chinese foreign ministry said on Monday that threats and intimidation would never work.

While Beijing has not published any forecasts for how the trade dispute might affect China’s export companies, jobs or the economy, the commerce ministry said it was monitoring the situation “on a continuous basis”.

Huang Libin, a spokesman for the Ministry of Industry and Information Technology, said on Tuesday that there had yet to be any significant impact on industrial output.

“We hear complaints from [Chinese] companies that US clients have requested a suspension of orders and deliveries, but so far it has had only a limited impact on the industrial sector,” he said.

Du also wrote that any bankruptcy cases created by the trade dispute would be very different from those involving the liquidation of “zombie” companies – a term used for underproductive and outmoded state-owned behemoths – as several of the firms at risk were promising hi-tech companies.

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While he did not mention any companies by name, Chinese telecoms manufacturer ZTE looked recently like it might be facing the threat of bankruptcy after being blacklisted by Washington. The Shenzhen-based company was banned from sourcing essential components from American suppliers after it was found guilty of breaching US business laws. The restriction was later lifted.

Du said in his article that China’s hi-tech firms could find themselves paying more for imported raw materials, and if their sales markets were closed off they would soon be on the brink of insolvency.

Under such circumstances, the courts’ strategy should be “protecting these companies under the law … or protecting their overall production capabilities, instead of liquidating and auctioning their assets piece by piece”, he said.

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Du also called for a list to be compiled of influential companies and investors in different industries that could be called upon to help restructure any companies that find themselves in trouble because of the trade dispute.

Because of the possible socioeconomic implications of the fallout, the government should also provide its full backing to the nation’s courts, he said.

“Without the government’s involvement and support, these problems won’t be solved effectively,” he said.

“[And] even though bankruptcy procedures resulting from the trade war won’t start immediately, we need to take precautions.”