Your comment about China’s banking system being at the mercy of the central government and how close we are getting to that point here in the US made me laugh. Even if it was admittedly one of those sad, “what else is there to do BUT laugh” and “how sadly true is that”, type of laughs.

Keep up the excellent writing.

Read Gordon Chang’s “The Coming Collapse of China” for a lot more detail on this.

But I also think that another reason for lack of an escrow system is simple tax evasion. If payments are tracked and tied to export orders there are corresponding taxes to be paid. One of the reasons for “the china price” is the fact that most factories are getting around paying taxes on orders. If payments are more transparent and/or tied to quality or export certificates the price will go up–at least 17%. Cash transactions make everything cheaper.

There isn’t yet a domestic demand for this type of system–if you’ve ever tried to negotiate LC’s here you know what I mean.

Another related issue, I think, is basic trust. Individuals and business get burned all the time in the myriad cash deals that make up most projects. There is a very weak and informal collections system and a real desire to work on with cash and friends. There just isn’t a lot of security for a large % of projects done here.

China hasn’t figured out how to work with strangers on a basis of formal or simple trust (as opposed to personal or deeper levels of trust/guanxi). And until that is a larger part of the culture, even if the tools were in place, people won’t use them.

I know China has unique challenges in facing money issues. Do you think there is 1) adequate need for some type of escrow service (is PayPal the answer?) and 2) do you think we will see such a company rise to the occasion in the near future?