B2B Payments

Chinese SMBs Caught In Trade War Crosshairs

The widespread consequences of a possible “trade war” between the U.S. and China don’t stop at steel giants and tech conglomerates. Small businesses are at risk of being caught in the cross-hairs, too.

As one small business owner recently told CNBC, “there are unintended consequences” to tariff hikes.

“In general, we think there is more room for harm to happen with small companies than good,” reflected National Small Business Association (NSBA) president and CEO Todd McCracken to the news outlet in response to President Donald Trump’s hike on aluminum and steel tariff increases. “The ripple effects of higher steel prices and a potential trade war and higher tariffs in other countries that can result from this will hurt companies across the economy.”

According to NSBA data, China is the fourth-largest export target for U.S. small businesses.

“Our small businesses are concerned about likely materials cost increases and ongoing retaliation by China and other countries, which could stymie small business export growth in industries far beyond those targeted by the tariffs,” NSBA vice president of public affairs, Molly Brogan Day, said to CNBC.

The effects, of course, flow both ways, with Chinese small businesses also increasingly concerned about the ongoing situation.

As Financial Times reported on Monday (April 9), business leaders in China are moving to reduce trade war tensions. And separate data suggests that trade tensions may stifle opportunities for Chinese SMBs to expand internationally.

According to the People’s Bank of China, small businesses accounted for about a third of all outstanding loans in the country as of April of last year. The statistic follows a push by government officials to promote lending to small businesses to drive economic growth and development, reports in FINSMES said last week.

Analysts also noted that small business borrowing is growing at a faster pace than large corporate borrowing, with SMBs adding between 15 and 20 percent to outstanding loan value year-over-year.

The publication highlighted the importance for Chinese small businesses to access financing for international growth.

But China's corporate debt levels are raising concerns for some analysts, with the China Banking Regulatory Commission (CBRC) warning earlier this year that the current corporate debt and shadow banking climate in the country is “grim and complicated.”

“Regulators must keep clear heads and cannot be blindly optimistic,” the CBRC said in a report published in January.

An ongoing trade war with the U.S. could hamper Chinese SMBs’ ability to expand internationally and land new business with U.S.-based partners, potentially threatening their ability to repay these loans.

Separate analysis from Coface in its China corporate payment survey, reported on by Global Trade Review, warned that despite economic growth in China, SMBs are increasingly facing delayed and late B2B payments. Coface's research found that, while fewer China-based businesses experienced payment delays, the portion of companies that faced delayed invoice payments of more than six months increased from 19 percent in 2016 to 26 percent in 2017.

The research also warned that “ultra-long” payment delays that impact more than 10 percent of a company’s turnover nearly doubled year-over-year.

“According to Coface's experience, around 80 percent of those ultra-long payment delays don't get paid at all,” Coface Asia Pacific economic Carlos Casanova told the publication. "When these constitute a sizable proportion of a company’s total annual turnover, their cash flow may be at risk.”

According to Coface, China’s recent economic growth has led risk managers to be more complacent, with fewer reporting the use of credit insurance or reliance on credit agency reports to mitigate those risks.

“Better economic performance in 2017 has led to complacency amongst risk managers. Fewer than 20 percent of respondents declared using credit insurance or credit agency reports to mitigate their risks,” Casanova told the publication. “The situation is worse for factoring and debt collection, with only 10 percent of those sampled reporting using these tools. Forty percent of respondents admitted that they use no credit management tools to mitigate credit risks.”

Limits on international expansion and business opportunities in the U.S. may add more financial stress as SMBs in China increase debt levels.

The latest analysis from CPA Australia suggests that Chinese small businesses are optimistic, although it is unclear how the threat of a trade war may have impacted that positivity. The company’s survey found that 78 percent of Mainland China small businesses said in March that they expect growth this year, with 97.5 percent predicting stable or improving local economic environments. CPA Australia noted the data reflected the highest levels of optimism among Chinese SMBs since 2014.



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