Changhong, China's largest TV maker, recently informed regulators of a planned write off of roughly US$310 million in unrecoverable debt from US channel player Apex. The distributor is Changhong's principal channel to the US market, and the total sum incurred over the course of two years represents close to half the value of the roughly five million TVs shipped to Apex between 2002 and 2003. 

 

By late December 2004, the total debt owed to Changhong ran upwards of US$467.5 million, yet the TV maker expects that US$150 million is recoverable. Changhong has cited poor management, high royalties, and the 24.48% anti-dumping duties imposed by US authorities early in April 2004 as the chief reasons behind Apex's financial difficulties. 

 

Apex came onto the US electronics scene in 1999 and gained market share at an astonishing rate with aggressive pricing. The company procures mainly from Chinese contract manufacturers and runs a barebones staff to handle US operations. Apex's model has since drawn many imitators, and the large-scale retailers that were formerly Apex's major customers, such as Circuit City, now use their mass procurement advantages to deal directly with Chinese manufacturers. 

 

In the past, Apex had been plagued by lawsuits over royalties and payment issues, and by the time Changhong enlisted the support of the distributor in 2001, its penchant for payment delinquency was well known. However, facing a saturated market at home and a product line chiefly limited to low-end offerings, it is believed that Changhong desperately needed to expand internationally. Apex offered a strong US presence and access to Wal-Mart. 

 

Changhong trusted that the benefits of Apex's access outweighed the risks of supplying on credit. Changhong's shipments thereafter soared, as did debts from the channel player. Accounts receivable progressively mounted, coming to a head when anti-dumping duties were imposed. Changhong subsequently ceased supply to Apex during the middle of 2004, according to the TV maker. 

 

Since the announcement Changhong has stated that they will deliver to US customers only after receiving payment. However, the effect of the write-off, along with other factors such as inventory levels and certain investment choices, are expected to impact the maker's performance for the next couple years. 

 

As for Apex, the arrest of the company chairman was confirmed, and an investigation into matter is still on going. Apex spokespeople have termed the matter a "pending business disagreement," and that the distributor is working to resolve the matter. The company has further stated that sales of other products, namely DVDs and some LCD TVs, would not be affected. 

 

Another Chinese player, DVD maker Genius, has claimed a debt of US$4.3 million from Apex. Other Chinese players are also expected to disclose losses.