80% of corporates in China experienced grappled with overdue payments in 2014

It's a slight improvement compared to 2013.

A new survey on corporate credit risk management in China by a leading global credit insurance group has revealed that 8 out of 10 corporates experienced overdue payments in 2014.

According to a release from Coface, further, the group forecasts that GDP growth will slow down to 7% in 2015 (vs 7.4% in 2014).

As corporates are still facing the challenges of high leverage, the high cost of financing and low profitability (driven by overcapacity), it is expected that non-payments will not improve in the short term.

The release noted that 79.8% of the companies interviewed in the survey reported overdues in 2014. This is a slight improvement compared to 2013, although they have remained at high levels for the last three years.

Among those surveyed, more than half (56.7%) saw an increase in overdue amounts over the past year, up 11.7% compared to 2013.

In terms of the length of overdues, 19.6% of respondents reported that the average overdue period exceeded 90-days in 2014, while only 17.8% had the same experience in 2013. The findings showed that, overall, payment in China remained very challenging in 2014.

Here's more from Coface:

This is in line with the non-performing loan (NPL) figures released by the China Banking Regulatory Commission. The NPL ratio rose to a multi-year high of 1.25%, as at the end of 2014. The risk of rising non-payments should not be overlooked.

“While the NPL figures are seen as lagging indicators, they show the tough situation the Chinese economy is facing. This is confirmed by the payment behaviour revealed in Coface’s annual survey” said Rocky Tung, Economist for the Asia-Pacific region.
“NPL soared by 42.3% YoY, as of the end of 2014, led by the substantial increase of 58.8% in substandard loans3 . These trends show that risks are on the rise, involving both the real economy and the financial system.”

China’s 7.4% YoY GDP growth registered in 2014 was the slowest growth rate in the last 24 years. Momentum is on a downwards trend. Coface forecasts that GDP will grow by 7% in 2015.

In January 2015, Coface placed a negative outlook on China’s A3 Country Risk Assessment (CRA), reflecting the weaker economic momentum, high leverage, the high cost of financing and weaker payments in the country.

Since the second half of 2014, it has been observed that the government considers that the economy is moving in the right direction - combining stable job growth with modest inflation.

However it is in the government’s interest that the property market does not continue to deteriorate – as ‘land usage right transfers’ are a major source of funds for the government (28.2% in 2013). As China is on pace to add over 13 million new jobs, inflation is expected to stay low.

The property market is showing early signs of stabilization since the government removed purchase restrictions in all but 5 cities and the introduction of monetary easing measures (interest rate cuts in November 2014 and required reserve ratio reductions in February).

Our 7% growth forecast is in line with the government’s rhetoric. This will not come as a surprise to corporates in China, as 61.7% of respondents believe that GDP growth will continue to slow down in 2015.