Reality check: Corporate payment trend and sectorial risk in China
The overall payment experience in China has deteriorated in 2013 comparing to 2012. Key messages from the China Payment Survey are:
- Average credit terms extended in China has become longer comparing to 2012
- Maximum credit terms has generally been lengthened in 2013 comparing to 2012
- Overdue situation has also become more common in 2013 comparing to 2012, with a rising concern of management
- A higher percentage of respondents told us that the average overdue-period has been lengthened
- 45% of the respondents told us that they have seen an increase in overdue amount in 2013, comparing to the 56% in 2012
Deteriorated payment experience reminds us of the credit risk in China. Traditionally speaking, smaller companies in China do not necessarily get enough credit facilities from the regular banking system and such issues are the main driver of the shadow banking system2 development in China. While we are expecting cost of fund to point higher in 2014, interest rate in the shadow-banking system is already high. An increasing trend of overdue payment adds weights to liquidity management of different stakeholders in the supply chain, and the vicious cycle could lead to significant ripple effect.
While hiking labor cost and RMB appreciation could be the headlined stories in the news, they are by far not the most concerning factor for business practitioners in China. When asked about what the most affecting factors are for 2014, the potentials of economic slowdown in China and credit tightening are namely the top two worries, according to our survey respondents.