Coface China Corporate Payment Survey 2022 : Longer payment delays and rising credit risks in some sectorsCoface’s 2022 China Corporate Payment Survey[1] shows that fewer firms encountered payment delays in 2021, but those that did report longer periods of overdue payments than in the previous year. The average payment delay rose from 79 days in 2020 to 86 days in 2021. Firms in 9 out of 13 sectors reported an increase in payment delays, led by agri-food, which recorded the largest increase of 43 days, followed by wood, transport, and textile.More companies are reporting ultra-long payment delays (ULPDs), which are payments overdue by more than six months, rising from 15% to 19% in 2021. More worrying, there was a significant increase in those facing ULPDs exceeding 10% of their annual turnover, jumping from 27% in 2020 to 40% in 2021, notably the construction and agri-food sectors.With China’s economic growth projected to slow in 2022, fewer companies are expecting an improvement in sales and cash flow.Coface expects China’s GDP growth to slow to 4.8% in 2022, following a strong 8.1% in 2021, as the Chinese economy continues to face significant headwinds to growth, including a property sector downturn, the pursuit of zero-COVID policies, subdued consumption recovery, and higher commodity prices.
Bernard Aw, Economist for Asia Pacific at Coface, said:“Coface’s latest China Corporate Payment Survey showed credit terms offered by Chinese companies remained tight despite a recovery in the Chinese economy in 2021, as companies remain cautious due to the ongoing pandemic. Agri-food and energy made the biggest cut (-23 days each), reflecting increasing credit risks linked to rising raw material prices.“Although fewer companies reported payment delays, there was a rise in the proportion of respondents reporting that payment delays had increased, from 36% in 2020 to 42% in 2021, the highest since 2016. Agri-food reported the largest surge in average payment delays (43 days) to reach 88 days. Upward trends were reported in wood (+20 days), transport (+18) and textile (+16), highlighting the impact of slower domestic demand due to strict social distancing restrictions in China.Chinese firms are less optimistic about China’s economic prospects, with 44% of respondents expecting sales to improve this year, down from 65% in 2020, while those forecasting better cash flow fell by nearly half from 50% in 2020 to 27% in 2021. Rising raw material prices, a weakening market demand, and the ongoing pandemic were key factors as reported by respondents.“The recent outbreak of Omicron demands more Covid control in China and it will worsen the global supply chain disruptions. Coface expects corporate bond defaults and insolvencies in China to increase in 2022, especially among sectors that accumulated higher cash flow risks in 2021 due to the pandemic.”
Payment delays[2] : Rising raw material prices become a key factor in overdue payment
Fewer companies experienced payment delays in 2021, with 53% of respondents reporting overdue payments, down from 57% in 2020. However, the average payment delay rose from 79 days in 2020 to 86 days in 2021. Construction continued experiencing the longest payment delays with 109 days, followed by 99 days for transport.Most worrying, the share of respondents experiencing ultra-long payment delays (ULPDs) exceeding 2% of annual turnover expanded from 47% in 2020 to 64% in 2021. Construction remained the sector with the highest share (56%) of respondents reporting ULPDs exceeding 10% of their annual turnover. According to Coface’s experience, 80% of ULPDs are never paid. When they constitute a share of annual turnover above 2%, a company’s cash flow could be at risk.The main reason behind those delays remains customers’ financial difficulties, highlighted by nearly three-quarters of respondents that indicated payment delays. Financial difficulties were caused mostly by fierce competition affecting margins (36%), but also – to a greater extent in 2021 – by rising raw materials prices (23% vs. 10% in 2020) and a slowdown in local market growth (16% vs. 10% in 2020). This reflects rising commodity prices are placing pressure on operational costs which directly impacts companies’ cash flow.
Economic expectations: Hopeful, but significant growth risks remain
Looking ahead, the majority of respondents…
Source : Increasing risks in supply chain disruptions and rising raw material prices
