New | Atradius worried over rising payment problems in China
Credit insurer Atradius warns of spiraling payment problems in China as trade data for January signals the sharpest slowdown in domestic demand in five years. A pile of unpaid bills would exacerbate reluctance among suppliers to ship goods to companies due to the risk of further running up bad debts.
Figures from China’s customs administration showed that imports in January declined by around 20 per cent from a year ago, while exports declined by 3 per cent year on year.
“The huge decrease in import figures in January is probably due to falling commodity prices. It is also showing, from my perspective, a slow down in domestic demand, which is a bit worrying while the government initiative is designed in increasing domestic consumption,” said Mathew Cockerill, country manager of Atradius in Hong Kong.
The impact of the weak domestic demand passed through the supply chain as poor sales led to a shortage of funds and a rise in overdue payments.
A survey on corporate payment practices conducted by Atradius showed that 67 per cent of respondents in mainland China reported late payments last year. The figure was much higher than the Asian average of 47 per cent, and jumped 8 percentage points from 59 per cent in 2012.
“When it starts getting over 60 per cent of people not paying their invoices on due date, it shows there’s actually quite a lot of financial stress running through the supply chain,” said Cockerill.
He saw large numbers of non-payment and claims lodged against credit insurance operating in China last year. As a result of increases in claims, Atradius and its partner China Continent Property & Casualty Insurance had to exit some lines of business last year.
“There was a number of trading policies that we were underwriting in China. Basically it was difficult to establish the validity of the trade because of the type of business they were doing. They were just in the supply chain. We decided to withdraw from that line of business,” he said.
The inflow of claims came from sectors including steel, textile, paper and solar industry. These sectors continued to be the focus of worry in the coming year, said Cokerill.
While the steel sector on the mainland has been plagued with over-capacity in the past two years, he said steel sector non-payment for credit insurance increased significantly in particular over the last year.
The month prior to the Chinese New Year had been a time when non-payments would pick up as buyers tend to hold cash and firms had to repay bank loans before it was rolled over again. Cockerill said this year he saw more clients based in Hong Kong in the IT components sector with manufacturing plants on the mainland reporting large increase in notification of non-payments in the past six weeks.
