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Market whisper: In 1Q14, more chinese SMEs are reporting "missing bosses" as staff found that their boss had disappeared and no longer contactable. There are two explanations for this:
- Indebtedness
Many of these bosses have decided to default on customers prepayments and staff payrolls. In addition, they have probably cashed out the loan or overdraft facilities of their banks because the interest payment alone is no longer sustainable. While these people are effectively insolvent, the attempt to siphon the last bits from their banks, customers and staff, will still see them through an cosy exit.
- Taxation
Many SMEs are highly profitability. These small/mid-sized businesses are usually registered by a single legal representative (法人). These companies amassed healthy profits and did not report sales through the issuing or receipts (发票). As the company grows, there is a massive discrepancy between the healthy cash-in-bank balance and lacklustre profit/sales in the accounting books. So instead of paying the taxman or taking legal responsibilites, some business owners opted to walk away with the accumulated untaxed profits + bank/customer/staff liabilities.
PS: If the problems are manageable, they will trade receipts (发票) among their peers in the same industry to increase expenses or COGS (cost of goods sold), eg Tom issues receipt for John at $1.50 for a $10 receipt while nothing is sold.
Aftermath
A very large short-position on offshore yuan emerged last week. To support a declining manufacturing sector, it is believed that the chinese will devalue the yuan further to 6.50-6.60 level against the USD by the end of the year.
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