NewSlow payments force more firms to fold
Mainland Chinese insolvency figures to rise 5 per cent this year after four years of decline, while bankruptcies in HK the highest since 2010
Corporate insolvency is expected to rise this year in China, with an increasing number of companies struggling to protect margins from late payments by customers.
Even as the economy continues to grow at a relatively good pace, Chinese firms are grappling with a state-driven shift in economic structure. This would inevitably lead to shrinking business opportunities in sectors such as construction, cement and steel, pushing up defaults in these areas, said Dutch trade credit insurer Atradius.
In a recent report, it forecast a "moderate increase" in China's insolvency rate this year.
Atradius' warning follows similar projections by competitors Euler Hermes and Coface, whose research shows a high level of receivables in arrears and rising bankruptcies.
The three companies command more than 80 per cent of the trade credit insurance market. Trade credit insurers protect sellers from payment defaults and other risks.
Euler Hermes, part of Allianz, Europe's biggest insurer, said it expected the official insolvency numbers to rise 5 per cent this year after four years of steady decline. The causes range from the clampdown on shadow banking and an oversupplied property market to tighter fiscal discipline among local governments.
The official bankruptcy figure of 2,630 last year masks the true picture of corporate health in China, it says. "Insolvency procedures in PRC jurisdiction are complicated and expensive, so a significant number of Chinese enterprises find alternative solutions to avoid filing for bankruptcy. The [insolvency] trend may be worse in reality."