Companies marred by payment delays suggest China’s slow economic recovery
With China’s economic growth projected slow in 2022, a payment survey by Coface, China’s credit insurance group, shows that many companies have reported ultra-long payment delays (ULPDs) which means companies are facing overdue payments by more than six months.
According to Coface, China’s economic growth is projected to slow to 4.8 per cent in 2022 which is a decline from last year’s 8.1 per cent. 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.
As the Chinese economy continues to face a significant slowdown, the property sector has also seen a downturn. The commodity prices have gone up and the consumption recovery is subdued.
Construction remained the sector with the highest share (56 pc) of respondents reporting ULPDs exceeding 10 pc of their annual turnover. According to Coface’s experience, 80 pc of ULPDs are never paid.
Bernard Aw, economist for the Asia Pacific at Coface said, “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.”
Chinese companies are less optimistic about the country’s economic prospects. Only 44 per cent of respondents are expecting sales to improve this year which is down from 65 per cent in 2020. Those respondents who are forecasting better cash flow also fell by about half from 50 per cent in 2020 to 27 per cent in 2021, according to Coface.
Rising raw material prices, a weakening market demand, and the ongoing pandemic were key factors as reported by respondents. Global supply chains are also likely to remain tight. Both the Russia-Ukraine war and China’s stern COVID policy are expected to deliver another hit to global supply chains.
The lockdowns in Shenzhen and Shanghai in March and April have impacted the normal operations of landside logistical and warehouse services, despite port operations continuing to function. This has already intensified pressure on supply chains during March.
China’s Logistics Industry Prosperity Index also declined to the lowest since February 2020. The logistics sector is affected by the spread of the pandemic in multiple parts of the country, where differentiated pandemic management measures disrupted cross-regional distribution and the ability to maintain a smooth flow.