\n<\/p>\n
HONG
\u00a0<\/b><\/p>\n In
\u00a0<\/b><\/p>\n Finally,
\u00a0<\/b><\/p>\n Bernard Aw, Economist for Asia Pacific at Coface, said:
\u00a0<\/b><\/p>\n “<\/i><\/b>Coface’s
\u00a0<\/i><\/p>\n “While the path of the pandemic remains uncertain
\u00a0<\/i><\/p>\n “Nevertheless, the survey indicated that credit
\u00a0<\/i><\/p>\n “Looking ahead, Coface expects corporate bond
\u00a0<\/i><\/p>\n Fewer
Customers’ financial difficulties
\u00a0<\/p>\n With
Despite
\u00a0<\/b><\/p>\n At
Looking
\nKONG SAR – Media OutReach<\/a> – 26 May 2021 – Overall, the Chinese
\neconomy expanded by 2.3% in 2020, being the only major economy to record
\ngrowth, and Coface<\/a> expects the GDP to accelerate to a 7.5% growth in 2021. This
\nwould be the fastest pace since 2013, and comfortably above the minimum of 6%
\nset by the authorities. <\/b><\/p>\n
\nnormal times, higher economic growth should translate into fewer incidents of
\npayment delays, but the recovery has been uneven across sectors.Thus, Coface’s
\n2021 China Corporate Payment Survey<\/b>[1]<\/b><\/sup>
\nshows that payment terms shortened by 11 days on average in 2020, falling to 75
\ndays, while the distribution of credit terms leaned towards a shorter rather
\nthan longer period.<\/b><\/p>\n
\nfirms also benefited from greater fiscal and monetary support measures last
\nyear, which are expected to be further tapered this year. Coface expects an
\nincrease in bond defaults and insolvencies in 2021, especially among sectors
\nthat accumulated higher cash-flow risks in 2020 amid a slowdown in credit
\ngrowth.<\/b><\/p>\n
\n<\/b><\/p>\n
\nlatest China Payment Survey showed Chinese companies taking the necessary step
\nto strengthen credit management in 2020 due to the Covid-19 pandemic. Credit
\nterms were shortened in many sectors, and more credit management tools were
\ndeployed, including the use of credit insurance and credit reports, alongside
\ndebt collection and factoring services. As a result, fewer companies
\nexperienced payment delays in 2020 compared to the previous year.<\/i><\/p>\n
\nand a sustained economic recovery is far from guaranteed, Chinese firms are
\noptimistic about China’s economic prospects, with 73% of respondents expecting
\ngrowth to improve this year, up significantly from 44% in 2020. This coincided
\nwith more firms anticipating better sales performance and improved cash flows
\nthis year. <\/i><\/p>\n
\nrisks are building up in specific sectors, which warrant close monitoring in
\nthe coming months. The proportion of firms in the construction and energy sectors
\nthat reported ultra-long payment delays (ULPDs, over 180 days) amounting to
\nmore than 10% of annual turnover doubled in 2020 to over 60%, hinting at
\nheightened cash flow risks. This development overlapped with rising bond defaults
\nin mainland China, especially in the construction and real estate sector.<\/i><\/p>\n
\ndefaults and insolvencies in China to increase in 2021, especially among
\nsectors that accumulated higher cash flow risks in 2020 due to the pandemic.”<\/i><\/p>\nPayment delays[2]<\/sup>: Most sectors
\nexperienced shorter delays, except construction<\/h3>\n
\ncompanies experienced payment delays in 2020, with 57% of respondents reporting overdue payments, down from 66% in 2019<\/b>.
\nThe drop in payment delays reflected a strong government policy response to
\nsoften the impact of the pandemic on business activity, which included tax
\nrelief, loan guarantees and loan interest waivers. According to Coface
\nsurvey, firms in 11 out of 13 sectors reported a decline in payment delays, despite
\nthe difficult context. <\/b>Among them,
\nwood, pharmaceuticals, transport and ICT reported the largest drops.There
\nwas no change in retail, while construction saw an increase in overdue payments<\/b>.
\n<\/p>\n
\nwere the main reason for payment delays<\/b>. The lack of financing
\nresources was the second most common reason – after fierce competition – suggesting
\nthat pockets of the economy may not have access to government support. <\/p>\nUpturn boosts
\noptimism, but higher prices remain key concerns<\/h3>\n
\nChina being the only major economy to see GDP growth in 2020, and recent
\neconomic data pointing to a steady expansion in the first quarter of 2021,
\nfirms are overall optimistic about economic conditions, according to the
\nsurvey. <\/b>Over 70% of respondents expect growth to improve in
\n2021, up considerably from 44% in 2020. This optimism was accompanied by a greater
\nshare of firms anticipating higher sales and cash-flows over the next 12 months<\/b>.
\nConsequently, a majority (62%) of respondents expects their business to
\nreturn to pre-COVID-19 levels in less than a year<\/b>, while nearly a quarter
\nestimates this period between one and two years. Higher prices was the most
\ncommon impact mentioned by respondents<\/b>, where almost two-thirds stated that
\nthe pandemic led to an increase in commodity prices, as governments’ public
\nhealth measures disrupted global supply chains.<\/p>\n
\nthe pandemic, 47% of respondents admitted not using any credit management tool
\nto mitigate cash-flow risks in 2020, after 40% in 2019<\/b>.
\nAt the same time, a greater proportion deployed more than one credit management
\ntool. The percentage of firms using credit insurance increased from 17% in 2019
\nto 27% in 2020, while those using credit reports were at 31% in 2020, up
\nsignificantly from 19%. Both factoring and debt collection also saw an increase
\ncompared to the previous year, reaching 10% and 13%, respectively.<\/p>\nBond defaults
\nand insolvencies set to rise in 2021<\/h3>\n
\nfirst glance, our survey’s findings may not seem to illustrate the connection
\nbetween cash-flow risks and corporate bonds defaults, but a sectoral
\nbreakdown shows a strengthening of the link<\/b>. The trend in China’s corporate
\nbond defaults has been on the rise since the first case in 2014, rising from
\nless than USD 1 billion in 2015 to a record USD 27 billion in 2020, according
\nto data compiled by Bloomberg. In the first four months of 2021, bond
\ndefaults surged by over 70% to USD 18 billion, mostly in real estate, aviation
\nand electronics<\/b>. A significant proportion of the defaults (37%) was
\nlinked to HNA Group, a Chinese conglomerate involved in various industries
\nincluding aviation, real estate, financial services, tourism and others<\/b>.
\nOur survey suggested that many of these sectors also had high cash-flow
\nrisks, with 67% of respondents in construction reporting over 10% of annual
\nturnover tied up in ULPDs (Ultra Long Payment Delays), alongside 29% in ICT and
\n19% in transport<\/b>.
\nahead, Coface expects corporate bond defaults and insolvencies to increase
\nin 2021, especially in sectors that accumulated higher cash-flow risks in 2020<\/b>,
\nas indicated in our 2021 China Corporate Payment Survey. These are the sectors
\nwith the highest proportion of ULPDs amounting to over 10% of annual turnover,
\nincluding construction (67%), energy (62%) and retail (30%).<\/p>\n
\n
\n
\n
\n
\n
\n
\n[1]<\/sup> This 2021 China
\nCorporate Payment Survey was conducted between February and April this year,
\nand surveyed over 600 companies across 13 broad sectors located in mainland
\nChina.
\n
\n
\n
\n<\/p>\n