Pubblichiamo l'intervista a Mr Patrick S.T.KO, esperto di mercati orientali e di recupero crediti in Cina..
BackIntervista a cura di Michelle Gatewood, corrispondente per l'estero Credit Village
(Patrick Ko has been interviewed by Ms Michelle Gatewood from Credit Village for "How to minimize the Credit Risk Exposure in PR China).
Patrick Ko
Michelle Gatewood:
What are systems of prevention are used regarding credits in China? Example: What activity do large companies or financial institutions conduct before assigning a credit to a client? i.e. credit reporting, do they invest in credit insurance, use a letter of credit ect..)
Patrick:
Firstly, companies will take the external and internal checking. In terms of internal check, the Credit Manager will review the historical transactions; sometimes make personal visit the customer's office observing real situation; to discuss with the clienteles for business volume the coming year! On the other hand, companies will order a credit report from outside agent to obtain more information regarding legal status, history background, shareholders & management background, latest financial statement (if available) and so on. By the way of comprehensive analysis, they decide the credit to the targeted companies. Nowadays, some companies start to beware of credit insurance, but it is still not so popular in PRC. China Export & Credit Insurance Corporation (Sinosure) is government base Chinese insurance company which offers credit insurance service in China, it provides exporters with guarantees for payment risk in doing export or re-export from China by the way of L/C, D/P, D/A, or OA, beside the export credit insurance, they also provide the domestic business credit insurance for Chinese companies. L/C is the most common credit guarantee in international trade business in china, the majority companies use L/C in their international trade In the biggest 4 commercial banks, they provides this L/C service.
Michelle Gatewood:
Are there many companies that offer credit reporting services in China? If so, how many approximately?
Patrick:
There are over 100 credit information providers in the market and the number of market player has rapidly been increased for the past few years. Recently, it was publicly announced that Moody has also acquired 49% equity from one credit agency locating in Beijing PR China to extend their business in the Greater China..
Michelle Gatewood:
What level of professionalism is present in this sector? And How reliable is the information contained in the credit reports?
Patrick:
Like the rest of western countries, PR China’s Credit Report is usually prepared by some professionals well-equipped with commercial knowledge & accounting know-how techniques. Basically, the Credit Report has reflected some historical information & financial analysis (both qualitative & quantitative measurements) and objective comments given by the credit agency. Those information are reliable & relevant, but it is better to have some expertise i.e. Certified Public Accountants to interpret the content & tell the true meanings among those financial ratios.
Michelle Gatewood:
Are there many debt collection agencies that offer collection services in the extra-judicial phase? If yes, please indicate approximately how many are present in the Chinese territory? Or are debt collection services performed through legal offices?
Patrick:
Debt recovery activities have been prohibited by PR China’s Government, which highly recommend those parties solving commercial disputations by legal means. The Industrial & Administration Department would not approve a business license for corporation whose scope of business including debt recovery, third parties collection, receivable management and etc. However, the demand of the market both inbound & outbound makes numerous agencies existing over all of the provinces. Therefore, they established their business as “Business Consultancy”.
Michelle Gatewood:
How are claims managed once a client has assigned them to a debt collection agency/law office, other than the standard collection process of letters and telephone collection? Is it common to find that agencies/law offices in China include field collection services in the extra-judicial phase? or are other methods used?
Patrick:
he local agencies/law firms will make phone calls and issue demand (legal) letters respectively. They will also arrange personal field visit to the debtor’s location, unless the distance is too remote or cross province. For some cases, the clienteles appoint triad to collect the debts, which use extra aggressive means. Eventually the outcome would be an adverse drawback. If the client makes a wrong choice, he / she needs to re-assign another collector to trace for money being collected by previously collector.
Michelle Gatewood:
We have often heard that debt collection agencies/law offices in the Asian market are very inventive in order to raise performance levels. Could you give an example of an original system used in order to raise these levels? (i.e. you may also use photographs, examples of letters, postcards, ect.)
Patrick:
In order to raise performance, some of them will issue postcard style demand notes to residential and office address. Therefore the debtor’s families or colleagues will be notified the indebtedness. It helps the collector creating pressure to speed up successful collection. Some of them will paste “Poster Size” demand notes at the front gate of debtor’s location to raise debtor awareness. However it is high recommended to use diplomatic collection to recover the debt rather than others.
Michelle Gatewood:
Who are the core clients that request services provided by credit reporting and debt collection agencies?
Patrick:
With the entry of WTO, Global Sourcing Centre & Global Factory, many Fortune 500 corporations, MNS and even small & medium enterprises set up their selling & purchasing offices in PR China. Some customers will place a Credit Report for their buyers & even suppliers, distributors, retailers, service providers & etc.
Michelle Gatewood:
Are there associations that represent the credit and debt collection industry? (Please elaborate)
Patrick:
In fact, by consideration of social security issue, debt collection agencies are still disapproval to manage in China. As some government department like “State Administration for Industry and Commerce” always get complaints about the debt collection harassment, sometimes it would take action on warning or seal up the offensive debt collection agencies. Up to the time being, debt recovery activities are still prohibited in PR China, therefore, we have not found any formal association in the market.
Michelle Gatewood:
In order to conduct the activity or a business of commercial information, credit reporting , debt collection and investigative services, what prerequisites/licenses are required in China, and how are they issued?
Patrick:
By the huge demand of “Credit Manager” as in-house control mechanism, Ministry of Labor and Social Security in PRC has issued the recognition of “Certificated Business Credit Collector”, which means those collectors are qualified & well equipped with collection skills.
Michelle Gatewood:
Are there privacy and consumers laws that protect consumers in your market? If so, could you give a brief explanation?
Patrick:
The regulations clarify certain issues regarding State Administration for Industry and Commerce’s implementation of the 1993 PRC Consumer Protection Law. The Regulation require, for the first time, that the illegal behavior of market operators be recorded in connection with operators’ credit histories. Unless they are able to prove majeure or other acceptable reasons, market operators will be found to have “deliberately delayed or unreasonably refused” to comly with the requirements of Article 50 of the Consumer Protection Law if they fail twice to repair or replace defective products or provide other sufficient remedies within fifteen days of the filing of legal claims raised by consumers. In cases where the product or the service is provided through mail-order, television, internet or phone sales, the defaulting market operators must, in addition to performing their contractual obligations or returning the purchases price, pay all communication and postal fee incurred in returning the defective product, as well as other reasonable fees incurred by the consumer.
Michelle Gatewood:
What are the average economic conditions/agreements between a debt collection agency and the client (creditor)? Is the payment of expenses incurred by the client/creditor included in the recovery process? ( must the debtor pay) and if so what percentage?
Patrick:
The commission for successfully collection is about 25% to 45%, usually the debtor need not responsible for the collection cost unless mutually agreed and stated in the agreement, loan application, hire purchase / leasing contract……
Michelle Gatewood:
What are the major challenges that you encounter in your profession?
Patrick:
The most difficulty for us to collect the debts are insufficient evidence to prove the indebtedness; high litigation cost; ineffective execution after judgment obtained; statutory limitation; protective culture.
Michelle Gatewood:
Is the sale of credit portfolios or distressed/charged off credits by banks, financial institutions and utility companies a consolidated commercial practice? Who are the principal players in this sector? Do you believe that there will be future opportunities for international agencies in portfolio acquisitions?
Patrick:
The market for sales of credit portfolios or distressed / charged off credits & non-performance loans (N.P.L.) are huge than expectation. For example, a 1st tier global banker has invested in a listed company in HK to purchase N.P.L. from banks in PR China, and then recover the debt to product foreseeable profit.
Michelle Gatewood:
In which phase does the warranted creditor decide to externally manage/assign these credits?
Patrick:
In common when the creditors meet the following difficulties, they will decide to assign the credits to third parties to collect. 1) Debtor cannot be located anymore, 2) The people who contact with resign, then creditor lose the contact with the company. 3) Debtor dispute. 4) Time lag between the creditor and debtor. 5) Language barrier shock between creditor and debtor. 6) The client finds the debtor no intention to settle the indebtedness amicably. Michelle Gatewood: What advice would you give a European credit manager who works with China markets in order to reduce credit risks? Patrick: It is better to order a Credit Report to minimize the risk exposure, to file litigation or place third parties collection without delay, to have credit insurance to minimize the risk exposure, to keep check the customer’s status in yearly basis, do any litigations being filed against the customers in local court...... .
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