The results of the China payment survey 2019, conducted by Coface with 1,500 Chinese companies, confirm deteriorated payment behavior. Slower economic growth, tight liquidity and increased competition are the main reasons mentioned by companies.
A slowdown in economic activity
While 2018 proved to be a slightly more challenging year for China with growth slowing to 6,6%, from a revised 6,8% a year earlier, growth should continue to slow in 2019 with a Coface projection to 6,2%. A context which has led to pressure for Chinese companies. Corporate bond defaults in US dollars quadrupled, reaching an amount of USD 16 billion, while the number of bankruptcy cases settled through the Supreme Court of the People’s Republic of China spiked to 6,646. Pressures on the Chinese economy that occur in a context of deleveraging efforts which led to tighter liquidity conditions and an escalation of trade tensions between the United States and China, which eroded consumer sentiment, resulting in weaker domestic consumption. 59% of respondents believe that growth will not improve in 2019, compared to 33% a year ago. This is the first time that this result has been recorded since Coface started conducting China payment surveys in 2003.
Longer payment delays
According to Coface survey, the numbers and extensions of payment delays also deteriorated during this period. 62% of Chinese companies experienced payment delays in 2018, with 40% reporting that they recorded an increase, compared to only 29% in 2017. Companies have resorted to using longer payment terms with average payment terms increased to 86 days in 2018, up from 76 days in 2017. A larger proportion of respondents stated that payment delays did not exceed 90 days on average. However, the proportion of those experiencing payment delays exceeding 120 days increased to 31% in 2018. And the proportion of companies experiencing ultra-long payment delays, of more than 180 days, and exceeding 2% of their annual turnover increased to 55% in 2018 from 47% in 2017. According to Coface, 80% of ultra-long payment delays are never paid. The main reasons cited by companies are market competition for 40% of them, and tighter liquidity for 19%.
This increase in delays is mostly observed in the automotive and transportation, construction, energy and ICT sectors. Actually, the largest proportion of companies experiencing ultra-long payment delays exceeding 10% of their annual turnovers, was in the construction sector (28%), the automotive sector (27%), and in the ICT sector (25%). By contrast, the parmaceutical sector recorded the lowest proportion (7%), ahead of the agri-food sector (12%).
Source : Coface – China Payment Survey 2019 : longer delays as growth falters – 15/03/2019