Unpaid Bills on the Rise in China
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The amount of money owed to Chinese listed companies has risen sharply in the previous quarter, lending support to claims of an imminent economic slowdown in China.
According to a report by the Financial Times, 66 percent of Chinese listed companies that have reported third-quarter results showed a year-on-year increase in unpaid bills, or accounts receivable in accounting terms, as a proportion of sales.
The amount of money owed to Chinese listed companies has risen sharply in the previous quarter, lending support to claims of an imminent economic slowdown in China.
According to a report by the Financial Times, 66 percent of Chinese listed companies that have reported third-quarter results showed a year-on-year increase in unpaid bills, or accounts receivable in accounting terms, as a proportion of sales.
In particular, accounts receivable rose the highest for steel, coal and other machinery sectors, a reflection of tumbling demand in the world’s second largest economy.
Janet Zhang, economist at GaveKal Dragonomics, told the FT:
[quote] Some enterprises are reluctant to reduce production, so they continue to produce and sell things even when the buyers can’t pay the money. This is a big difference from 2008, when collapsing demand caused many enterprises to reduce production very significantly. [/quote]
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As of August, combined net receivables for the nation’s industrial companies totalled nearly 8 trillion yuan ($1.28 trillion), up 15.6 percent from a year ago, outpacing the companies’ average operating revenue growth by 5.4 percentage points, according to data from the National Bureau of Statistics.
A recent survey conducted by Peking University’s National Development Research Institute and e-commerce firm Alibaba also found that more than 30 percent of respondents from the Yangtze River Delta reported operational difficulty as a result of unpaid bills, according to a report by Caixin.
The report also added that there are early signs of contagion, as the effects of the payment crunch spreads from the delta region, where the concentration of small and medium businesses is the highest, to central and western provinces in China.
However, some optimists expect that the problem of unpaid bills could improve by the end of this year, as Beijing’s steps to encourage economic growth start to take effect.
Citing recently approved infrastructure projects, Frederic Neumann, an economist at HSBC, told the FT:
[quote] This might be a lagging indicator that will dissipate in coming quarters. The financial situation has eased recently. [/quote]
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