China Corporate Payment Survey 2018: payment delays increase despite rapid and robust growth

Stocks and Financial Services Press Releases Thursday April 19, 2018 12:59
Bangkok--19 Apr--Coface

The Chinese economy staged a comeback in 2017. GDP ticked up from 6.7% in 2016 to 6.9% in 2017, favoured by strong demand, as well as loose monetary and fiscal policy settings. As a result, risk managers have become more complacent, both in terms of their economic expectations and their risk management procedures.

However, better headline figures notwithstanding, tail risks have continued to increase, despite better economic performance. The proportion of respondents experiencing payment delays exceeding 120 days increased to 26% in 2017 from 19% in 2016, while those experiencing ultra-long (more than 180 days) payment delays exceeding 2% of their annual turnover increased from 35% in 2016 to 47% in 2017. More worryingly, those reporting that more than 10% of their annual turnover was tied up in ultra-long payment delays increased to 21% in 2017 from 11% in 2016. According to Coface's experience, around 80% of these ultra-long payment delays don't get paid at all. When these constitute a sizeable proportion of a company's total annual turnover, their cash flow may be at risk. This is a clear indication that some noteworthy pockets of stress are notable within the Chinese economy.

Key Takeaways:
  • Average credit terms in China increased to 76 days in 2017, up from 68 days in 2016. This is in line with the trend observed since 2015. With that said, the average credit terms increased by 11% YOY, down from last year's record increase of 21% YOY.
  • Average credit terms were the longest in the energy sector, with one third of respondents offering credit exceeding 120 days in 2017. The pharmaceutical, construction, transportation, and automotive sectors all offered payment terms above average.
  • Tail risks continued to increase, despite better economic performance. 47% of companies experienced ultra-long payment delays exceeding 2% of annual turnover. According to Coface's experience, 80% of these ultra-long payment delays are never paid. This means that a company's cash flow could be at risk when this ratio is elevated.
  • More worryingly, those reporting that more than 10% of their annual turnover was tied up in ultra-long payment delays increased to 21% in 2017 compared to 11% in 2016. This constitutes a 90% increase YOY and is a telling sign that pockets of stress continue to exist in the Chinese economy.
  • The proportion of respondents recording ultra-long payment delays exceeding 10% of annual turnover was highest for the energy (33%), construction (32%) and automotive (27%) sectors.
  • Over one third of listed energy companies reported insufficient earnings to cover their interest payments (EBITDA/interest expense below 1). This was the highest among all the sectors, followed by real estate and in line with Coface's risk assessments.
  • Struggling companies in these sectors might have had to default on their debt repayments, were they unable to access evergreen loans. Not surprisingly, the energy and construction sectors have some of the highest debt ratios in China, exceeding 100% of their assets
About our China corporate payment survey:

Coface has been conducting annual surveys covering companies' payment experiences in China since 2003. The aim of this exercise is to better understand corporate credit management practices and payment experiences. In our latest survey, data collection was conducted during the final quarter of 2017, and valid responses were received from 1,003 companies.

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