Chinese Ministries Not Paying Their Bills, China Eastern Cancels 24 Dreamliners

Chinese Ministries Not Paying Their Bills, China Eastern Cancels 24 DreamlinersChina’s CNR Corporation, a state-owned enterprise that manufactures trains, is having to issue RMB2 billion in one-year bonds in order to finance debt it is owed from the Ministry of Rail, according to the South China Morning Post.

CNR, who are listed in Shanghai, had a negative second quarter in 2011, resulting in an operating loss of RMB8.58 billion against a positive inflow of RMB905 million in the same period last year. The company has firmly left the situation at the door of the Ministry of Rail. “The main reason for the turn from positive to negative cash flow was a huge and rapid increase in the scale of production and the tardiness of the company’s biggest customer, the Ministry of Rail, in paying its bills,” the company said.

CNR has apparently taken out several short term loans in the wake of the Ministry of Rail’s inability to meet payments, with these doubling to RMB27.2 billion in the six months to June 2011.

Meanwhile, China Eastern Airlines has cancelled orders for 24 Boeing Dreamliners, with other Chinese airlines expected to follow suit. The Dreamliner is a long haul aircraft, and the cancellation appears to reflect concerns that the United States and European economies will remain sluggish for some time.

The airline has said in a statement to the Hong Kong Stock Exchange that it plans instead to spend US$3.3 billion to buy 45 Boeing 737 aircraft instead, a jet that is typically used for regional, rather than intercontinental flights. Other Chinese airlines have orders for Dreamliners, including China Southern (10), Air China (15), Hainan Airlines (10) and Xiamen Airlines (6).

For professional assistance in China contact Rosario Di Maggio at rosario.dimaggio@dezshira.com or visit www.dezshira.com

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China Briefing hosts a wealth of business intelligence on legal, tax, and operational issues in China from a practical perspective. Knowledge, expertise and commentary for China Briefing is regularly contributed by Dezan Shira & Associates´ professional legal and tax staff. Currently located in Futian district, Dezan Shira & Associates has been assisting foreign companies in Shenzhen for 22 years.

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