Firms feel the pinch of US crisis

Hong Kong companies are feeling the heat of the US subprime mortgage crisis and the surge in product recalls as increasing payment defaults by US enterprises have prompted the factories to put purchase orders on hold to avoid loss.

Hong Kong SME Progress and Investment Association chairman Chiu Che-hon, a toy manufacturer, said the operating environment had suffered immensely as the US had kept recalling Chinese-made products, citing safety concerns.

Chiu said between 30 and 40 percent of the association's 500 members, which had not purchased production materials, had decided to keep orders for Christmas from the US in abeyance. He estimated the value at more than HK$10 million.

The manufacturers will discuss with their US clients about product standard and design at the toys and gifts show next month.

"It is impossible for some of the manufacturers to meet the safety standards. It is better to put the orders on hold to protect their interest. Some of them feared that shipments may be recalled after reaching the US because of the weak consumption market there," he said.

The US economy has been hit by the subprime mortgage crisis, with institutions facing bankruptcy and businesses having cash-flow problems.

Receivable Management Services, an accounting service provider, said they had received more than 500 requests from the HK companies to collect debts from defaulting American enterprises in the first half of 2007, a 50 percent increase from last year.

The company's managing director of China and Hong Kong, Deborah Ho said these requests were mainly from the garment, electronic and toys industries.

"We discover that the reason of the bad debts was related to the financial crisis of US," she said.

The company's international operations assistant vice president, Jeff Venzke said these companies had difficulty in finding a partner to help collect the debt.

"Most of the Hong Kong companies do not have legal representations in the US," he said.

Ho said Hong Kong companies were not fully alerted on debt collection, and urged them to pay attention to the receivable account and seek professional advice if their account is being held.

Companies should also conduct background checks to examine whether their clients were involved in financial difficulties, Ho added.

Michael Zito, a lawyer from US law firm Lathrop and Gage, said the problem had just begun and would continue.

Federation of Hong Kong Industries deputy chairman Stanley Lau feared that business would drop if the subprime mortgage condition continued to get worse.