With a quarter of all Australian trade, and a significant amount of New Zealand trade, taking place with China, the month-long celebration of Chinese New Year can have a considerable effect on SMEs.
Chinese New Year is the event that has one of the biggest impacts on international trade each year.
This year, Chinese New Year and the “Year of the Rat” begins on 25 January and the official holiday lasts a week (24-30 January). However, with Chinese businesses preparing and some undertaking extended celebrations, the business impact can last up to a month.
Local businesses in China close in each of the major cities – everything from offices, banks and factories will shut down. Many millions of Chinese workers travel from the cities back to their rural home towns to celebrate with their families.
Other countries with large Chinese populations including Malaysia, Singapore, Indonesia, Thailand and the Philippines are also impacted.
It can be a challenging time for importers and exporters, but with preparation you can minimise disruptions.
How to prepare your importing business for Chinese New Year
- Keep an eagle eye on inventory to ensure you have an adequate supply of products to keep your business running from January through to March.
- Contact your Chinese business partners as soon as possible to find out their specific closing dates and to gain an understanding of how much their production will slow down during this period. Find out if they will have skeleton staff or a contact you can reach out to in case of emergency.
- Place orders ahead of time, because the business disruptions can last up to a month and sometimes orders will not be accepted during Chinese New Year.
- If you export to China, send shipments in advance so you don’t have to worry about your customers receiving their orders on time. And be prepared for a surge in orders from Chinese companies once the holiday period ends!
- Having access to adequate working capital is essential. For importers, this means ensuring your funding lines are sufficient to cover a build-up of stock. For exporters, it means gearing up for production and ensuring you can meet the demands of partners once holiday has passed.
One of the most effective ways to ensure you have enough working capital is to use trade finance.
What is trade finance?
Trade finance is where a lender serves as a third-party to make the trade process go smoother and reduce friction during transactions.
For instance, a lender might offer extended credit to the importer to fulfil an order and provide an advanced payment to the exporter that matches the agreement terms..
Not only does trade finance help reduce the payment risk and supply risk and improve cashflow, it makes things easier across the board for both parties during the busy Chinese New Year period.
With some thought given to preparation, SME importers can stock up on items for the first quarter of 2020 and have all of the inventory they need, even if the ordering schedule is disrupted because of Chinese New Year.
As for exporters, they’ll be able to ramp up production without having to worry about major payment delays.
Craig Michie, import finance spokesperson, Scottish Pacific
