Coface study on the payment behaviour of companies in China
For the eighth edition of its study on the payment behaviour of Chinese companies, Coface questioned more than 1,000 companies between October and December 2010. The objective of this study is to better understand the behaviour of Chinese companies in terms of domestic payment.
The study carried out by Coface on the payment behaviour of Chinese companies highlights their excellent resistance to the crisis due to the sharp increase in credit, stabilisation of the Yuan (up to June 2010) and broad stimulus plan. Nevertheless, in the context of high inflation and a tightening of the economic policies, growth should slow slightly from 2011 onwards (8.8% in
However, the tightening of the economic policies and deep changes in the Chinese growth model will have microeconomic consequences. Low added value sectors (textiles, shoes, toys) will be the first to be affected by the withdrawal of the fiscal stimulus, the desire of the authorities to move up-market, salary increases and the rise in the value of the Yuan. An increase in bankruptcies in these sectors is to be expected.
Companies are now more ambitious in their conquest for the domestic market
Now the main source of finance for Chinese companies, credit sales have been rising sharply over the past two year (+23%). And nearly 88% of Chinese companies questioned by Coface resorted to credit transactions in 2010. This development can be explained by the various incentive measures and fiscal stimulus programmes put in place by the Chinese government.
53% of companies offer credit payment to their clients to meet competition and gain market shares, and 25% of these are forced to do so due to their clients’ cash flow problems; take note that this category represented only 8% before the crises.
Less and less atypical payment behaviour in
Since 2008 Chinese companies have seen a considerable improvement in the payment behaviour of their domestic buyers. In 2008 almost all surveyed companies recorded overdue payments; this share has since decreased by 26%.
Fewer overdue payments reported by companies, but also the number of overdue days is reduced : only 6.2% of overdue payments exceed 120 days (13.2% in 2009) and 2/3 are paid within a maximum period of 60 days.
These overdue payments are mainly caused by clients’ financial situations, themselves affected by competition, the lack of access to external resources and increasingly the cost of raw materials.
Amongst the various types of companies in
Uncertain prospects for improvement
Despite encouraging global trends, the Chinese companies questioned do not anticipate a significant improvement in payment behaviour in the short-term. 41.4% of companies expect that this improvement may take more than 3 years and 33% of companies do not believe the situation will ever improve.
This pessimism can be explained by companies’ concerns regarding the withdrawal of the fiscal stimulus; that is the case for 37% of companies questioned. Other fears also include: 31% of companies claim they are concerned about the tightening of credit whereas for 23% of companies the main danger comes from the rise of the value of the Yuan. Finally, salary increases following the social movements which affected Foxconn and Honda in
"2010 has been a very favourable year for Chinese companies due to growth and economic policy support. But in 2011, companies are undergoing series of negative impacts: the withdrawal of the budgetary stimulus, scarcer and more expensive credit, acceleration in the Yan’s appreciation, inflation and the increase in supply costs and above all the intense pressure to increase salaries. If in the medium-term, these impacts are welcome as they are favourable to Chinese growth in favour of consumption, in the short-term the most fragile companies could be in difficulty”, observes Constance Boublil, Coface economist, specialist in the Asia region.
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Coface's mission is to facilitate global business-to-business trade by offering its 135,000 customers solutions to fully or partly outsource trade relationship management and to finance and protect their receivables: credit insurance, factoring, business information and receivables management. Thanks to the worldwide local service delivered by 6,600 staff in 65 countries, over 45% of the world's 500 largest corporate groups are already customers of Coface.
Coface is a subsidiary of Natixis whose share capital (Tier 1) was 16.8 billion Euros end December 2010.