China corporate insolvencies expected to rise 20pc this year as economy slows

A wave of corporate collapses is expected in both mainland China and Hong Kong as insolvency cases look set to soar in a slowing economy, says a credit insurer.

Fabrice Desnos, head of Asia-Pacific of credit insurer Euler Hermes, said insolvency cases in mainland China were expected to increase 20 per cent this year, following a 24 per cent jump last year. He expects the trend to hold for some time, with insolvencies growing a further 10 per cent next year.

“In mainland China, the growing number of company insolvencies is caused by the economic slowdown and deflationary pressures, which undermine companies’ profitability. We should also pay attention to the high level of corporate debt, which had increased to 166 per cent of [gross domestic product] in the third quarter of last year, compared with 124 per cent in 2014,” he told the South China Morning Post.

Payment delays are also on the rise. The average payment day from the date the bills are issued rose to 91 last year, 16 days more than in 2012.

The situation was similarly grim in Hong Kong, Desnos said, with corporate insolvencies expected to rise 15 per cent this year after jumping 13 per cent last year. Next year was likely to see a 5 per cent increase, he added.

“In Hong Kong, rising corporate risks are highly correlated to lower external demand, especially from mainland China. This affects the domestic economy through the exports channel, but also through the retail sector that is highly dependent on tourism,” he said.