Chinese Corporate Payment Delays Weighing Economy Down

China’s slowing economy is marred by more than just a slumped yuan. Recent analysis emerged showing that the nation’s biggest banks have been hit with some of the highest levels of nonperforming corporate loans in years, and according to reports on Wednesday (April 27), bad corporate debt isn’t the only thing weighing down the nation’s business landscape.

Financial Times reported yesterday that suppliers across China are forced to accept receivables — that is, their corporate buyers are extending their payment terms — that put pressure on cash flow yet are largely unavoidable.

“Receivables are the unavoidable problem for traditional manufacturers,” explained the general manager of one of these suppliers, Shanghai Caison Color Material Chemical, in an interview with the publication. “If you don’t accept receivables, you have no business. It’s standard industry practice, even though no one likes it.”

Lengthening payment terms between businesses is a problem that can hit any market and indeed has seen rises across the globe following the 2008 financial crisis.

But, according to reports, the issue is becoming a lofty problem to tackle in China and is amplifying economic woes.

Reports said companies in China waited a median 70 days in 2015, the longest span in 14 years. In 2014, businesses waited 60 days to get paid and just 46 days in 2011. The data was provided by Chinese financial database Wind Information, said reports.

Suppliers are seeking for more of their corporate customers to pay with a bankers’ acceptance instead of cash, meaning manufacturers aren’t actually seeing the money — instead, merely accepting a promise of getting paid later on. Reports noted that the majority of bankers’ acceptances can’t be cashed for at least 90 days.

The issue is also plaguing the entire supply chain, with manufacturers forced to pass on those delayed payments to their own suppliers, reports said.

Economists are also pointing to a “bottleneck” in the nation’s economy, reports stated.

“It looks like liquidity is very ample, but a lot of that is being used to help the real estate sector refinance,” said Oriental Securities economist Shao Yu. “It’s not circulating widely through the economy.”