Calcutta: Despite a reasonable economic recovery, the giant Chinese economy will be in the throes of serious problems, according to a high-level expert inquiry into China.Read also – Pro Kabaddi League season 8 starts from Wednesday, matches will be played without spectators due to fear of Covid
This 2021 China Business Payments Survey, made available to IANS, was conducted between February and April this year by COFACE which surveyed more than 600 companies in 13 major industries located in mainland China. Also Read – Government Introduces Bill to Raise Age of Marriage for Women 18-21 in Lok Sabha
The Chinese economy grew by 2.3% in 2020, being the only major economy to record growth, and Coface expects GDP to accelerate to reach 7.5% growth in 2021. Also Read – Danish MP Ali from BSP, who attended Parliament until Monday, tests positive for Covid
This would be the fastest pace since 2013, and well above the minimum of 6% set by the authorities.
In normal times, higher economic growth should translate into fewer late payment incidents, but the recovery has been uneven across sectors.
Thus, the Coface survey on payments to businesses in China 2021 shows that payment terms have shortened by 11 days on average in 2020, falling to 75 days, while the distribution of credit conditions has tilted towards a longer period. shorter than longer.
Finally, companies also benefited from a strengthening of fiscal and monetary support measures last year, which are expected to be further reduced this year.
Coface expects an increase in defaults and bond defaults in 2021, especially among sectors that have accumulated higher cash risks in 2020 against a backdrop of slowing credit growth.
Bernard Aw, Asia-Pacific economist at Coface, said: “Coface’s latest survey on payments in China showed that Chinese companies were taking the necessary measures to strengthen credit management in 2020 due to the pandemic of Covid-19.
“Credit terms have been shortened in many industries and more credit management tools have been deployed, including the use of credit insurance and credit reports, as well as debt collection and credit reporting services. factoring.
“As a result, fewer companies experienced late payments in 2020 compared to the previous year. “
As the trajectory of the pandemic remains uncertain and a sustained economic recovery is far from guaranteed, Chinese companies are optimistic about China’s economic outlook, with 73% of respondents expecting growth to improve. this year, compared to 44% in 2020.
This coincided with more companies anticipating better sales performance and improved cash flow this year.
“However, the survey indicated that credit risks are accumulating in specific sectors, which requires close monitoring in the coming months,” said Bernard Aw.
“The proportion of companies in the construction and energy sectors that reported ultra-long late payments (ULPD, more than 180 days) amounting to more than 10% of annual turnover has doubled in 2020 to reach over 60%, hinting at increased treasury risks. . This development coincided with the rise in debt defaults in mainland China, particularly in the construction and real estate sectors.
No more bond defaults, insolvencies
“Looking ahead, Coface expects corporate defaults and insolvencies in China to increase in 2021, particularly in sectors that have accumulated higher cash flow risks in 2020.”
Fewer businesses experienced late payments in 2020, with 57% of respondents reporting late payments, up from 66% in 2019.
The decline in late payments reflected a vigorous government policy response to mitigate the impact of the pandemic on business activity, which included tax breaks, loan guarantees, and interest waivers on loans.
According to the Coface survey, companies in 11 out of 13 sectors report a drop in payment terms, despite the difficult context. Among them, timber, pharmaceuticals, transport and ICT recorded the largest declines. There has been no change in retailing, while construction has seen an increase in late payments.
The main cause of late payments was the financial difficulties of customers. Lack of financial resources was the second most common reason – after fierce competition – suggesting that pockets of the economy might not have access to government support.
Recovery spurs optimism, but rising prices remain a major concern
With China being the only major economy to experience GDP growth in 2020 and recent economic data indicating steady expansion in the first quarter of 2021, businesses are broadly optimistic about economic conditions, according to the survey.
Over 70% of respondents expect growth to improve in 2021, up from 44% in 2020. This optimism has been accompanied by a greater proportion of companies expecting increased sales and cash flow over the next 12 months.
As a result, a majority (62%) of those surveyed expect their business to return to pre-COVID-19 levels in less than a year, while almost a quarter estimate this period to be between one and two. year.
Rising prices were the impact most often mentioned by respondents, where nearly two-thirds said the pandemic had pushed up commodity prices, as government public health measures disrupted supply chains. global supply.
Despite the pandemic, 47% of those surveyed admitted that they had not used any credit management tools to mitigate cash flow risks in 2020, after 40% in 2019. At the same time, a larger proportion deployed more. a credit management tool. The percentage of businesses using credit insurance increased from 17% in 2019 to 27% in 2020, while those using credit reports were 31% in 2020, up from 19%. Factoring and debt collection also saw an increase compared to the previous year, reaching 10% and 13% respectively.
Defaults and insolvencies expected to increase in 2021
At first glance, the survey results may not seem to illustrate the link between treasury risks and corporate bond defaults, but a sectoral breakdown shows a stronger link.
The trend of Chinese corporate bond defaults has been on the rise since the first occurrence in 2014, from less than $ 1 billion in 2015 to a record $ 27 billion in 2020, according to data compiled by Bloomberg . In the first four months of 2021, bond defaults jumped more than 70% to $ 18 billion, mostly in real estate, aviation and electronics.
A significant proportion of the defaults (37%) were linked to HNA Group, a Chinese conglomerate involved in various industries, including aviation, real estate, financial services, tourism and others.
Coface’s survey suggested that many of these sectors also presented high cash flow risks, with 67% of construction respondents reporting more than 10% of annual turnover related to ULPDs (Ultra Long Payment Delays). , alongside 29% in ICT and 19% in transport.
Going forward, Coface expects corporate bond defaults and insolvencies to increase in 2021, particularly in sectors that have accumulated higher cash flow risks in 2020, as indicated in our survey. 2021 on corporate payments in China.
These are the sectors with the highest proportion of ULPD representing more than 10 percent of annual turnover, including construction (67 percent), energy (62 percent) and retail (30 percent).
With 75 years of experience and the most extensive international network, Coface is a leader in commercial credit insurance and related specialist services, including factoring, debt collection, single-risk insurance, surety bonds. and information services.
Coface affirms that its experts work at the pace of the global economy, helping 50,000 customers, in 100 countries, to create prosperous, growing and dynamic businesses around the world. Coface supports businesses in their credit decisions. The Group’s services and solutions strengthen their sales capacity by protecting them against the risk of non-payment on their domestic and export markets. In 2020, Coface employed ~ 4,450 people and achieved a turnover of 1.45 billion euros.