China Payment Survey 2019: Longer delays as growth falters
The Chinese economy experienced some challenges in 2018. 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. Deleveraging efforts led to tighter liquidity conditions during the first half of 2018. This coincided with an escalation of trade tensions between the United States and China, which eroded consumer sentiment, resulting in weaker domestic consumption. Reflecting these adverse conditions, a majority of respondents believe that it is unlikely that growth will improve in 2019 (59% vs. 33% a year ago). This is the first time that this result has been recorded since Coface started conducting China payment surveys in 2003.
This context has led to pressure for Chinese companies, who have resorted to using longer payment terms to sustain business. According to our survey of 1,500 Chinese companies , average payment terms increased to 86 days in 2018 – up from 76 days in 2017 and in line with a trend that began in 2015 – with terms being longest for the automotive and transportation sectors, followed by construction and energy.
Payment delays also deteriorated in 2018: 62% of companies experienced payment delays in 2018, with 40% reporting that they recorded an increase in 2018, much higher than the 29% registered in 2017. More worryingly, the proportion of respondents experiencing ultra-long payment delays (more than 180 days) exceeding 2 % of their annual turnover increased to 55% in 2018 from 47% in 2017. According to Coface’s experience, 80% of ultra-long payment delays are never paid. When these constitute more than 2% of annual turnover, a company’s cash ﬂow may be at risk.
Additionally, on the high- risk end of the spectrum, the largest proportion of respondents experiencing ultra-long payment delays exceeding 10 % of their annual turnovers was in the construction sector (28%), followed by automotive (27%), and ICT (25%). The pharmaceutical sector recorded the lowest proportion (7%), ahead of the agri-food sector (12%). Further aggravating matters, almost 60% of respondents admitted to using banker acceptance drafts and/or commercial acceptance drafts in place of cash for payments. These represent hidden cash ﬂow risks, which may prove problematic as growth continues to slow in 2019.
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