Thai bank warning over China firms' debt levels
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Agriculture exporters may be hit
China’s rising debt levels and lowered expectations for growth are creating high risk for Thai businesses that have activities with Chinese traders, Kasikornbank warned last week.
Songpol Chevapanyaroj, executive vice president, said the bank discovered that the inventory levels of Chinese customers of the bank’s customers have been rising, so Chinese customers have been cutting back on orders from Thai firms.
Chinese buyers have requested Thai exporters to extend payment terms to maintain their liquidity. Before, they never asked that.
“We found Chinese buyers require a credit term extension to three months,” he said.
The request was regarded as a “high risk” to Thai exporters because it means late payment. Thai business should be aware of their partners, especially new buyers.
Companies that are unsure about the Chinese situation should require a letter of credit and documents to tackle unexpected payment problems.
Agriculture products such as rubber and cassava have witnessed credit term extensions requested by partners.
“If it’s inconvenient for Thai customers to open an L/C, they should prevent risk via a trade credit guarantee,” he said.
The weakened demand for intermediate goods from China’s manufacturers is hurting Thai agricultural products and electronics parts. Traders should also be cautious about doing business with partners in Vietnam because the economy over there was fragile, he warned.
Pimonwan Mahujchariya-wong, deputy managing director of the Macro and Microeco-
nomic Research Division at Kasikorn Research Centre, said Chinese direct investment in Thailand had been constant despite the Chinese economic uncertainty.
The Chinese government has supported Chinese companies going abroad because it wants to control investment at home, so Asean and Thailand have the opportunity to gain from outward investment.
Beijing is expected to stimulate the economy in the rest of the year or else economic expansion might fall under its target of 7.5 per cent, she added.
Thiti Tantikulanan, executive chairman of Kasikorn Securities, said liquidity problems might force many Chinese com-panies to stop operating since this had never happened in the country before.
The tightening of liquidity in China comes from the attempt of the central bank there to clamp down on rising debt levels from shadow banking, because borrowing costs have surged to 6 per cent from the money market rate of 3 per cent.
