EXPORTERS to China have been issued with fresh warnings after several banks have refused payment on delivery of goods.
The Paris-based International Chamber of Commerce has warned that Chinese banks are unnecessarily rejecting valid banking documents by looking for simple errors such as spelling mistakes to exit a contract.
While the ICC’s International Maritime Bureau singled out payment relating to steel imports into China, ICC Australia chief executive Martin Cox said the problem ran far deeper, with Australian exports particularly at risk.
Already there are known cases where Australian banks have been informed by their Chinese counterparts that payment would not be honoured.
IMB director Pottengal Mukundan said that the value of rejected documents relating to steel shipments alone now exceeded $US100 mill-ion.
These losses were primarily with respect to letters of credit payable at sight or deferred for a maximum of 90 days.
“A rash of Chinese banks appear to be disregarding the ICC’s universally accepted rules on letters of credit, known as UCP 500,” Captain Mukundan said.
“Banks confirming these reports indicate that the grounds for rejecting the documents are simply not justified under the UCP 500.”
He said it was causing serious problems for vessels and could lead to a spate of legal action as sellers, shippers and buyers tried to minimise the damage.
“With the appropriate paperwork being rejected by Chinese financial institutions, ships are finding themselves arriving without any buyers to receive their cargo,” Captain Mukundan said.
“As this predicament grows, there is likely to be a flurry of litigation between buyers, sellers, banks, ship owners, and chartering companies, with each attempting to recover their losses,” he said.
Mr Cox said Chinese banks, which were not sufficiently covered for losses, were finding ways to break out of contracts when faced with changing commodity or currency exchange rates.
“Steel prices have dropped by more than 15 per cent in recent months. Steel contracts entered into when the price was higher are being rejected by Chinese banks, despite valid documentation,” he said.
A BHPBilliton spokesman said the company, which is currently in price negotiations with China, has had no payment difficulties and was unaware of the concerns.
“We are certainly producing at record levels and our exports to China have been a growth market for us,” the spokesman said.
But Mr Cox said many exporters and financiers were already becoming wary of doing trade with China.
“As a result of the occurrences, many banks around the world are now listing China in their ‘high risk’ category.”
“All four of Australia’s major banks are members of ICC, and each of them has serious concerns with spurious discrepancies being used as an excuse not to honour contracts.”
Yet, Mr Cox believes banks are unwilling to speak out about their concerns not wanting to upset their relationship with Chinese banks and because of client confidentiality issues.
A spokesman from one of the big four Australian banks said China had a reputation that has been built up over a number of years for breaking the rules.
“We have even taken it through to diplomatic channels,” the spokes-man said.
He said second-tier banks were at risk, because often they would take on higher-risk clients.
Australia China Business Council president Des Williams said as yet he was unaware of any concerns among the council members but warned that it was important for exporters to deal with reliable Chinese partners.
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