China Debt Woes Present a Growing Threat to Supply Chains, Report Says
The Chartered Institute of Procurement and Supply warns that actions by China’s central bank may raise the potential for defaults and disruptions
Companies doing in business in China could see suppliers fall into disarray overnight if the People’s Bank of China moves to rein in the debt market, either through monetary policy or by allowing more borrowers to default, said John Glen, a CIPS economist.
Even suppliers with good credit could be forced to cut costs or delay shipments if they are able to borrow less, he said. “There’s probably going to be … a significant amount of defaults, and what you have to make sure of is that default doesn’t cause dislocations in your supply chain,” Mr. Glen said.
CIPS put China’s contribution to global supply chain risks on par with India, which is typically viewed as a more dangerous place to do business.
top logistics news
- Get the latest logistics and supply chain news and analysis via an email newsletter. Sign up here.
In its report, CIPS recommends companies doing business in China communicate more with suppliers there and line up alternatives at each tier of their supply chains. That way, if one company fails another can quickly step in. Commodities producers, which often deal directly with debt-laden Chinese buyers, also need to make sure they are properly insured against default, Mr. Glen said.