China’s credit risks are down in most sectors, but payment delays persist in construction and energy, survey finds

Newly released poll of 600 companies across 13 sectors in China finds that Beijing’s stimulus measures to support the economy have largely eased credit risks

Survey attributes payment delays to customers’ financial difficulties, as some had no access to government support

3-MIN READ3-MIN

An increase in overdue payments in the construction sector coincided with rising bond defaults in mainland China last year, especially by heavily indebted state-backed companies in the construction and real estate sectors. Photo: Xinhua

Published: 11:30am, 26 May 2021Updated: 11:30am, 26 May 2021

Given Beijing’s stimulus measures to support the economy, Chinese credit risks appear to be on the decline, but there is still considerable exposure in China’s construction and energy sectors, according to a new survey.

Although fewer companies experienced payment delays in 2020 compared with 2019, the proportion of firms in both the construction and energy sectors that reported payment delays longer than 180 days on invoices totalling more than 10 per cent of their annual turnover doubled to more than 60 per cent last year, according to the new analysis by credit insurance firm Coface.

And an increase in overdue payments in the construction sector coincided with rising bond defaults in mainland China, especially by heavily indebted state-backed companies in the construction and real estate sectors, as authorities tightened access to funding to avoid a possible real estate bubble in bigger cities, and to avoid excessive debt accumulation among the nation’s biggest property developers.

China’s corporate bond defaults have been on the rise since the first case in 2014, with total default amounts rising from less than US$1 billion in 2015 to a record US$27 billion in 2020, according to data compiled by Bloomberg. In the first four months of 2021, bond defaults surged by more than 70 per cent to US$18 billion, mostly in real estate, aviation and electronics.

The Coface survey, which was conducted between February and April and included more than 600 companies across 13 sectors in China, attributed the payment delays to customers’ financial difficulties, as some had no access to government support.

“Looking ahead, Coface expects corporate bond defaults and insolvencies in China to increase in 2021, especially among sectors that accumulated higher cash flow risks in 2020 due to the pandemic,” said Bernard Aw, economist for Asia-Pacific at Coface.