Coface’s survey of corporate credit risk management in China, held in the fourth quarter of 2013, revealed that 8 out of 10 companies in China experienced overdue payments in 2013.
According to Coface’s survey, 82% of the interviewed companies reported overdue payments in 2013, a 5 % increase compared to 2012 and the highest level in 3 years. Of those affected, 45% said the overdue amounts had also increased. Companies also experienced overdue payments for a longer period: 18% reported average overdues of more than 90 days, a 5 % increase compared to 2012
According to Rocky Tung, Economist of the Asia Pacific Region at Coface, “the deterioration of payments in China serves as an alert. Traditionally speaking, smaller companies in China do not necessarily have access to enough credit facilities from the regular banking system and this is the main driver of the growth in the shadow banking system. While we expect costs of funds to increase in 2014, the interest rate in the shadow-banking system is already high. The increasing trend to overdue payment exacerbates the liquidity issues of different stakeholders in the supply chain, and this vicious cycle could lead to a significant ripple effect”.
Most industries in China saw a deterioration in corporate payments and an increasing number of industry participants reported that their average overdue-period reached more than 60 days in 2013, which is greater than 2012. This trend is especially worrying for 3 sectors: industrial machinery & electronics (+16%), household electric/electronic appliances (+19%) and chemicals (+11%). These statistics are important because it indicates if these industries are able to generate cash from their operations.
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