Coface Asia Corporate Payment Survey 2021: Corporate payment delay trend stabilized; companies see brighter outlook, but risks and uncertainty remain

HONG KONG SAR – Media OutReach – 5 July 2021 – Coface‘s
2021 Asia Corporate Payment Survey, conducted between October 2020 and March
2021, provides insights into the evolution of payment behaviour and credit
management practices of over 2,500 companies across the Asia Pacific region
during a pandemic year. Respondents came from nine markets (Australia, China,
Hong Kong SAR, India, Japan, Malaysia, Singapore, Thailand and Taiwan) and 13
sectors located in the Asia-Pacific region.

No deterioration
of payment delays despite the impact of COVID

65%
of respondents experienced payment delays in 2020, similar to 2019. Despite a weakened economic environment, the survey conducted by Coface shows that payment delays improved in 2020, with
the average duration of overdue payments falling to a five-year low, thanks to
strong government policy responses. Shorter payment delays were seen across six
of the nine surveyed economies and 10 out of 13 sectors. This trend was
partially due to robust and coordinated government policy responses to soften
the impact of the pandemic on business activity, as well as the move by
companies towards tightening credit management and strengthening cash-flow
resiliency. This tighter credit policy was reflected by the average duration of
payment delays in Asia Pacific, which fell to 79 days in 2020, down from 85 in
2019, and its shortest length since 2015.

However,
there was a build-up of credit risks in Australia and Hong Kong, with both
reporting a strong increase in late payments, and more crucially, a sharp rise
in ultra-long payment delays (ULPDs, over 180 days) amounting to over 2% of
annual turnover. According to Coface’s experience, 80% of ultra-long payment
delays (ULPDs, over 180 days) are never paid. Meanwhile, the retail, construction, and transport sectors – among the worst
hit by the pandemic –   saw the largest
increases in ULPDs over 2% of their annual turnover, indicating an increase in cash flow risk.

Economic
improvement in 2021: Companies in Australia and the automotive industry are
most optimistic

2020
was characterised by the shock of Covid-19 on both economies and society.
Unlike previous recessions, which tended to be gradual and shallower, the
pandemic recession was rapid and deep due to the unique elements of the
coronavirus pandemic. Companies were surveyed about the impact of Covid-19 on
their business operations. In Japan and Taiwan, a reduction in demand was the
top reason impacting companies’ sales and cash-flows, whereas in China, higher
material prices were the most-cited reason. In India, where many companies rely
on migrant workers, the top impact cited was insufficient workforces due to
lockdown measures disrupting business operations.

With
robust and coordinated policy responses, an accelerated shift towards
digitalisation, and countries reopening parts of their economy after strict
lockdown measures, the recovery was quick but uneven. Companies nevertheless expect that economic growth will improve in
2021. Australian firms were the most optimistic, with 80% of respondents
anticipating higher growth, followed by India (76%), China (73%), Malaysia
(73%) and Taiwan (71%). In contrast, Japan was the only country where less than
two-thirds of respondents (61%) expect an improvement in economic growth during
2021.

By
sectors, automotive is the most
confident regarding year-ahead sales, with 66% of respondents expecting an
improvement. This was followed by energy (64%), metals (64%), paper (63%) and
pharmaceutical (61%). The highest proportion of companies anticipating an
improvement in cash flows over the next 12 months were found in automotive,
agri-food, and pharmaceutical at 55% each, followed by metals (53%), paper
(52%), and chemicals (51%).

Information &
communications equipment export drives growth in Asia but risks remain

With
the ongoing move towards “normal” business conditions, we expect the region to experience
positive growth after contracting in 2020. The
pace of expansion will be the fastest in India (+9.0%), which saw the sharpest
contraction among the nine surveyed economies during 2020. This is followed
by China (+7.5%), Singapore (+6.3%), Taiwan (+5.6%), Australia (5.0%), Hong
Kong (+4.8%), Malaysia (+4.6%), Japan (+2.7%) and Thailand (+2.2%). External demand has been a key driver of
the recovery for Asia, as a global shift towards remote working and remote
learning drove a global need for information and communications (ICT) equipment.

This greatly benefited several
economies in the region that are key exporters of ICT products ,
such as China (+40% YTD), Taiwan (21% YTD), Malaysia (28% YTD) and Singapore
(9% YTD). An increase in capital investment also boosted sales of electronic
and electrical machinery. However, the recovery in private consumption was much
more gradual, and lagged behind growth in manufacturing and exports as labour
market improvements remained weak and many parts of the APAC region experienced
renewed mobility restrictions and lockdowns. Curbs on international travel
remained largely in place, which prevented the tourism sector from mounting a
recovery.

“Our baseline scenario assumes that
there will be no new wave of COVID-19 infections in the second half of 2021,
and that a ramp-up of vaccination improves the resiliency of the recovery. The
caveat is that the current environment remains difficult to predict. Moreover,
there are rising risks to the recovery, such as the global semiconductor
shortage, which could limit Asian export growth, and rising commodity prices,
which could compress corporate margins and weigh on demand,” explained
Bernard Aw, Coface’s Asia-Pacific
Economist.

The complete report is available here.