The number of Chinese companies experiencing payment delays increased last year and many expect the situation to deteriorate this year amid an economic slowdown, French credit insurer Coface SA said in a report yesterday.
Sixty-two percent of companies in China reported payment delays, with 40 percent seeing an increase in delays, from 29 percent in 2017, it said, adding that slower economic growth had implications for Chinese companies.
The amount of corporate bond defaults quadrupled, reaching US$16 billion, while the number of bankruptcy cases settled through the Supreme Court of the People’s Republic of China spiked to 6,646, it said.
“Structural headwinds are catching up with China’s economy after a period of buoyant growth,” Coface economist for the Asia-Pacific region Carlos Casanova said.
The survey of 1,500 Chinese companies confirmed that payment behaviors took a downturn as a result of tight liquidity and fierce competition, Casanova said.
That happened in the wake of Beijing’s deleveraging efforts in the first half of last year, and coincided with an escalation in trade tensions between the US and China, the survey said.
A majority of respondents said it is unlikely that GDP growth will improve this year, up from 33 percent expressing a similar view last year, it said.
Chinese companies have resorted to longer payment terms to sustain business operations, the survey said.
Average payment terms increased to 86 days, up from 76 days in 2017, with terms being the longest for the automotive and transportation sectors, followed by construction and energy firms, it added.
The number of respondents that experienced ultra-long payment delays in excess of 2 percent of their annual turnover rose from 47 to 55 percent, the survey found.
“When payment delays constitute more than 2 percent of annual turnover, a company’s cash flow may be at risk,” Coface said, as 80 percent of ultra-long payment delays, namely more than 180 days, are never paid.
A majority of the firms that saw ultra-long payment delays in excess of 10 percent of their annual turnover were in the construction sector at 28 percent, followed by automotive at 27 percent, and information and communication technologies at 25 percent, it said.
The pharmaceutical sector had the lowest proportion of payment delays at 7 percent, the company said.
With China’s economy expected to slow further this year, credit risks will intensify for sectors that have heavy liquidity and debt payment pressures, Casanova said.
Almost 60 percent of respondents said they used banker acceptance drafts and commercial acceptance drafts in place of cash for payments, the survey found.
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