In China, folks are walking away from entire factories
First, Tao Shoulong burned his company’s financial books. He then sold his private golf club memberships and disposed of his Mercedes S-600 sedan.
And then he was gone.
And just like that, China’s biggest textile dye operation — with four factories, a campus the size of 31 football fields, 4,000 workers and debts of at least $200 million — was history.
Some of my fly fishing pals have noticed an increased number of solicitations for the white-label manufacture of rods and reels, mostly from China. The deals seem good compared to equipment prices in the US, but it’s the credit risk I recommend they dig into first.
At one time, dealing with foreign suppliers meant paying in cash or securing letters of credit – the overseas entity was uncomfortable with US bankruptcy laws and wouldn’t ship product without some protection. You still have to do business this way, only now you have to worry that the supplier will simply take your money and run.
I’d be wary of doing business on pay-in-advance terms with anyone right now (and particularly so if they are ten thousand plus miles away). If that’s the only way to get samples, ask if they have a domestic distribution point first and/or request some references. Don’t come out of the gate with custom orders either – specifically request sample stock or factory seconds.
And no matter the initial order size, always keep your fingers crossed. (h/t Calculated Risk)
SIDE NOTE: CR noted that Chinese contraction could result in higher intermediate/long term interest rates in the US, but called the notion “speculative.” I believe the concept is anything but speculative – shrinking capital flow into US Treasuries is impending reality. And “decoupling” isn’t really dead at all – instead it has changed stripes, with the Fed Funds target about to decouple from actual rates.