Corporate payments among China-based firms continued to worsen in 2015, and Chinese companies decreased average credit terms, sparking a warning that firms with overcapacity and low profits have a higher likelihood of default.
Some 80% of 1,000 China-based companies surveyed by Coface said they experienced late payments in 2015, up slightly from 79.8% in 2014, the firm outlined in a report released March 16.
Meanwhile, 58.1% of those surveyed said they saw an increase in overdue amounts over the prior year; 17.9% had accounts past 180 days, exceeding 5% of their annual revenue, wrote Coface economist Charlie Carre in her report China Corporate Payment Survey: Only a Few Spared.
“This is in line with the rise of nonperforming bank loans, an increasing number of corporate defaults and the deterioration of business and investor confidence,” Carre wrote.
More Chinese companies also believe the Chinese economic slowdown will affect their buyers’ payment defaults in 2016–57.9% in 2015 vs. 48.4% in 2014.
Customer financial difficulties (62.4% of respondents) continue to impact late payments, which are in turn increasingly led by “fierce competition impacting margins” (46.9%) and “lack of financing resources” (18.1%),” Carre said.
The Chinese construction sector appears most at risk, with 28.3% of credit sales overdue by more than 150 days, while 57% of the sector’s respondents have more than 2% of their turnover affected by overdue payments of more than six months, Carre found.
Other sectors feeling the strain are IT and metals, with 15.2% and 13%, respectively, of overdue credit sales of more than 150 days, Coface said. Telecoms are also under strain.
When it comes to resolving non-payments, a majority of survey respondents (73.4%) said “amicable negotiation is the most effective tool,” while 43.9% said the legal environment in China improved over the prior year, leading Carre to conclude that more firms may feel comfortable with taking legal recourse.