China 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.