Search

ASIA
ECONOMY | Staff Reporter, China
Published: 04 Jun 12
509 views


China SMEs fear insufficient access to credit facilities

Growing credit card use among local buyers is also causing frequent payment delays.

In a press release, Coface reported key findings from its 9th study intended to provide a better understanding of domestic payment behaviour of Chinese companies. Coface interviewed over 1,300 companies in various sectors and with different legal profiles between October and December 2011.

Despite the slowdown in activity in 2011 given the halt of the fiscal stimulus package, tighter monetary policy and the deceleration in external demand, Chinese companies’ payment behaviour remained globally satisfactory with sales on credit rising sharply. Nevertheless, cash asset problems, competition and more difficult access to financing for small businesses which were the main causes of payment delays in 2011, will continue to affect corporate financial strength in 2012. Budget stimulus measures may however attenuate economic risks
and support activity.

90% of Chinese companies now use credit transactions. Credit sales have become the main source of financing for companies in China since the 2008 crisis. The proportion of companies using this method rose to 90% in 2011 compared to only 65% four years ago. The phenomenon can be attributed to the need to deal with the competition, true for at least 53% of companies responding to the survey, and to greater confidence between business partners, as is the case for 23.5% of respondents. Fewer companies are forced to offer credit terms of payment owing to cash asset problems faced by their clients.

Although credit sales are becoming more widespread, credit terms contracted in 2011. Nearly 75% of transactions are negotiated at 60 days and less, which attenuates the risk, whilst transactions at 90 days and more are increasingly rare and concern primarily one-off contracts.

Payment delays are more frequent, but for shorter periods. One of the logical consequences of growing credit sales is that Chinese companies suffer more frequently from payment delays by local buyers. This amounts to 79% of companies, compared to 67.4% in 2010. It should be noted, however, that in 2008 over 90% of companies experienced overdue payments.

On the other hand, payment delays are for shorter periods. Only 10% exceed 90 days after the due date. 36.5% of invoices are paid within 30 days of the due date, a figure that has been improving, uninterrupted, since 2008.

Three vulnerable sectors are an exception to the overall trend: construction, steel and textiles, in which payment delays are often over 60 days. The solar power industry should also be monitored given over- capacity and over-production of new energy sources. It is in full growth despite low consumption on the domestic market following excessively high prices and the absence of any government subsidy policy.

As it was the case last year, the main cause of payment delays is still clients’ difficult financial position, which was noted by 63% of companies, due to the combination of cash asset issues, competition and lack of access to external financing.

Concerns in 2012: companies and insufficient access to credit facilities. In 2012 Chinese growth could continue to slow down and could amount to 8% over the year. Coface experience in China indicates that access to bank financing is increasingly limited for private sector companies and in particular small businesses. This is also indicated by the study results: nearly one third of companies taking part in the study stated that the main danger in 2012 was insufficient access to credit facilities.

As bank financing is granted mostly to public sector companies, small businesses must resort to alternative sources of financing such as ‘shadow banking’. This informal credit market has grown as a result of credit market distortion generated by the current organisation of the Chinese financial sector, but is very fragile.

The bankruptcies that took place in Wenzhou last October spread rapidly throughout the sector and exacerbated companies’ difficulties.



Sign up for our newsletter

 

Do you know more about this story? Contact us anonymously through this link.

Click here to learn about advertising, content sponsorship, events & rountables, custom media solutions, whitepaper writing, sales leads or eDM opportunities with us.

To get a media kit and information on advertising or sponsoring click here.

Tags: credit card use, China, business transactions, payment method, funds, financing source

LATEST ECONOMY JOBS »
  • No jobs posted on this category.
    PRINT ISSUE »

    Subscribe Now
    Cash-flush tourists in HK

    215 views

    Is Central Hong Kong a ghost town in the making?

    341 views

    As goes Singapore, so goes Hong Kong?

    283 views

    MOST READ EXCLUSIVES

    Hong Kong’s 5 hot new restaurants in September

    Hong Kong’s 5 hot new restaurants in September

    More international brands made their way into Hong Kong’s F&B industry.

    by KRISANA GALLEZO
    20 Oct 2014 | 1707 views
     

    Check out BASF’s new environment-friendly headquarters

    Check out BASF’s new environment-friendly headquarters

    The company cuts 50% of its electricity consumption every month through LED lighting.

    by KRISANA GALLEZO
    29 Sep 2014 | 1423 views

    Check out HK’s first dining-in-the-dark restaurant

    Check out HK’s first dining-in-the-dark restaurant

    Experience an actual blind date at the Alchemy in the Dark.

    by KRISANA GALLEZO
    10 Oct 2014 | 1404 views
     

    Take a tour at Hong Kong’s first modern French restaurant

    Take a tour at Hong Kong’s first modern French restaurant

    And, get to know the three-Michelin-starred Chef behind its creation.

    by KRISANA GALLEZO
    23 Sep 2014 | 1080 views

    The Langham Hong Kong completes US$30 million refurbishment

    The Langham Hong Kong completes US$30 million refurbishment

    Check out the new London-style suites and its award-winning Artesian Bar.

    by KRISANA GALLEZO
    27 Oct 2014 | 958 views
     

    Do you want to build a killer app?

    Do you want to build a killer app?

    Altitude Labs will make your ideas happen – Silicon Valley-style.

    by KRISANA GALLEZO
    9 Oct 2014 | 668 views

    Are you ready for Italian mania? Jamie’s Italian finally hits Hong Kong

    Are you ready for Italian mania? Jamie’s Italian finally hits Hong Kong

    The new outlet features a bold graffiti mural by the founder’s long-time pal.

    by KRISANA GALLEZO
    3 Nov 2014 | 666 views
     

    The future of innovation: What’s next after Facebook and Twitter?

    The future of innovation: What’s next after Facebook and Twitter?

    A video version of Twitter might be under way.

    by KRISANA GALLEZO
    11 Dec 2014 | 593 views
    close Don't Show Again

    STAY INFORMED! Get our free weekly newsletter