homepage_logo.gifChina continues to throw up unpleasant surprises for Xaar, the UK-listed manufacturer of inkjet printheads.

As reported earlier by EngagingChina,
Xaar recently warned the City that sales to China, which now generates
the majority of revenues, were below expectations. The reason it then
gave was the tough line it was taking on granting credit to Chinese
customers.

Now, it seems, some of its Chinese customers have allegedly failed to pay import duties
on the printheads they buy from Xaar. The Chinese customs authorities
have started an investigation into the companies, who account for
around 15% of the UK company's turnover, which was £43m in 2005.

Xaar
says these investigations are not new. But because this particular
investigation is being coordinated by central customs authorities,
rather than by local officials as has previously been the case, “this
is likely to increase the period of the investigation and its impact on
current trading which remains below expectations.”

The company
says it is not party to the investigation, which it was made aware of
on July 19 but chose not to disclose because it then though that it
would not have a material effect.

However, analysts at Altium
Securities told Reuters that around two thirds of Xaar's sales may not
have full import duty paid, which could impact sales by up to 8%. Investors voted with their feet and the company's share price has lost 55% in the past month.

Of
course, few businesses have the luxury of being able to choose their
customers. But Xaar's Chinese experiences paint a depressing picture of
a business sector where late payment and tax avoidance are not uncommon.

That's
hardly likely to inspire confidence in the growing number of small
western manufacturers which, like it or not, find their fortunes
increasingly tied to China.

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