China Corporate Payment Survey
Since 2003, Coface has been conducting annual surveys on business payment experience in China. In 2015, the average credit terms offered by China-based firms decreased again, reflecting a more prudent approach to granting credit facilities to customers. The overall payment experience in China deteriorated and remained very challenging in 2015. This can be seen from the over 80% of the survey respondents reporting overdue experiences, 58.1% with an increase in overdue amounts over the past year and 17.9% with ultra-long overdue amounts (over 180 days) exceeding 5% of their annual turnover. This is in line with the rise of non-performing bank loans, an increasing number of corporate defaults and the deterioration of business and investor confidence. Furthermore, private debt is still growing faster than GDP, with outstanding debts held by the private non-financial sector at 201% in June 2015.
There are growing concerns about the future trajectory of the Chinese economy, as reflected by the volatility in stock markets, capital outflows and pressures on the foreign exchange rate. A growing number of companies (57.9% in 2015, vs 48.4% in 2014) believe that the Chinese economic slowdown will affect their buyers’ payment defaults in 2016. China’s 6.9% GDP growth in 2015 was the lowest in 25 years, while Coface’s forecast of 6.5% in 2016 would be another record. Momentum is on a downwards trend, due to the rebalancing process and low global demand. At the same time, businesses in China are facing increasing challenges, such as high leverage with steep costs of financing (despite monetary easing), low profitability driven by large overcapacities in certain sectors and volatility on the FX and stock markets. Monetary measures have not been very effective in 2015 and Coface expects more stimulus packages in 2016, as the Chinese authorities endeavour to avoid a hard landing.
The construction sector appears to be the most at risk and the situation is deteriorating rapidly. 28.3% of its credit sales in overdue are over by more than 150 days and 57% of the sector’s respondents have more than 2% of their turnover impacted by overdues of more than 6 months1. Metals and IT report, respectively, 13% and 15.2% of overdue credit sales of more than 150 days – while telecoms are also under pressure. Some sectors are in better shape but even household spending related sectors, such as the retail and automotive sectors, are seeing a deterioration in their payment experiences.