Turning the Tide: Companies Slash Payment Delays in 2022 & Anticipate Soaring Economic Growth in 2023

3 mins read

23 May 2023

According to the latest survey by Coface, a reduced number of firms experienced payment delays in 2022; only 40% of respondents reported overdue payments, marking a significant decline from the previous year’s figure of 53%.

In the face of an economic slowdown caused by the Omicron variant and subsequent lockdown measures, Chinese businesses have shown resilience by offering longer credit terms to their customers. According to Bernard Aw, Chief Economist for Asia Pacific at Coface, average payment terms in China increased from 77 days in 2021 to 81 days in 2022. This adjustment was necessary as customers required more time to make payments amidst liquidity constraints and mobility restrictions that disrupted payment processes.

Furthermore, this shift towards longer payment terms resulted in fewer reported payment delays. The proportion of respondents reporting overdue payments fell from 53% in 2021 to 40% in 2022, marking the smallest share in the past five years. These findings indicate that businesses are adapting to the challenging economic conditions and striving to maintain smoother payment processes.

Following the results, Bernard Aw, Chief Economist, Asia Pacific, Coface commented, “China Payment Survey showed Chinese businesses were given a breather in making payments through longer credit terms amid an economic slowdown and strict COVID-related restrictions. More time to make payments helped to reduce the incidence of payment delays in 2022. However, there remain some sectors that appeared most vulnerable to financing risks, such as chemicals and wood. This is because the combination of higher energy and raw material prices, production disruption and weaker demand has pressured the sector’s liquidity conditions. While China’s reopening and rebound in 2023 is a positive development, the recovery is expected to be modest, indicating that companies’ payment behaviour will remain cautious.”

Optimism Grows as China Transitions from Zero-Covid Policy

Looking ahead, survey respondents expressed increasing optimism regarding economic prospects in the next 12 months, as the Chinese government moved away from its zero-Covid policy by the end of 2022. The share of respondents anticipating higher economic growth rose significantly from 68% in 2021 to 84% in 2022.

Funding Risk Heightened in Chemicals and Wood Sectors; Construction Sector Faces Pressure

The survey also highlighted specific sectors that faced increased funding risk and longer payment delays. In the chemical sector, 34% of respondents reported ultra-long payment delays exceeding 10% of their annual turnover, a rise of 8 percentage points from 2021. This sector exhibited the highest proportion of such delays among all 13 sectors surveyed. Similarly, the wood sector experienced a deterioration in financial health, with 40% of respondents reporting an increase in the value of overdue payments compared to 33% in 2021.

Despite the Chinese government’s efforts to ease its stance towards real estate developers in late 2022, the construction sector continued to face challenges. With payment delays of 96 days, it recorded the longest payment delays amid a correction in the housing market.

Commodity Prices and Insufficient Workforce Impact Cash Flow

The survey revealed that rising raw material prices were a leading cause of payment delays, cited by 30% of respondents, up from 23% in 2021. The surge in commodity prices following the conflict in Ukraine and ongoing supply chain pressures resulted in significant increases in input costs, adding strain to companies’ finances. Additionally, the impact of an insufficient workforce due to lockdown measures was identified as the top factor affecting cash flow and sales by 61% of respondents, highlighting the challenges faced by businesses in maintaining productivity.

Overall Improvement in Economic Expectations

Despite the hardships faced in 2022, respondents displayed a greater sense of optimism regarding sales performance and cash flow in the coming year. Those anticipating improved sales performance rose from 44% in 2021 to 50% in 2022, while the proportion projecting improved cash flow increased more significantly, from 27% to 49%.

As the Chinese government shifts its approach away from a zero-Covid policy, respondents’ positive outlook on economic growth has also grown. The share of respondents expecting higher economic growth surged from 68% in 2021 to 84%. Coface forecasts China’s GDP growth to accelerate between 4% and 5% in 2023, signaling potential recovery and progress in the coming year.

Amidst the challenges brought by the pandemic and subsequent lockdowns, Chinese businesses have shown resilience and adaptability. Despite sector-specific funding risks and ongoing supply chain pressures, the overall outlook points towards a brighter future for China’s business landscape in 2023, accompanied by projected economic growth.

For more information about Coface, visit coface.com.