China's Corporate Payment Delays Shorten In 2024, Firms Exercise Caution

In a recent survey conducted by Coface, findings reveal a nuanced shift in corporate payment behaviors throughout 2023, with implications for the upcoming year. Businesses have shown a greater willingness to extend payment terms to their clients, albeit with a reduction in the duration of these terms from 81 days in 2022 to 70 days in 2023. This adjustment has led to an increase in reported payment delays, though the average length of these delays has seen a decrease, moving from 83 days to 64 days.

Junyu Tan, North Asia Economist at Coface, highlighted the return to normalcy in economic activities and corporate business practices post-pandemic. "2023 was the year when economic activities generally normalized from the pandemic," Tan stated, emphasizing the strategic tightening of payment terms by corporations as a response to the evolving market conditions.

The survey also sheds light on the broader economic outlook and sector-specific trends. Despite an uptick in payment delays, there's an observed decrease in ultra-long payment delays (ULPDs), which are particularly concerning due to their high non-payment risk. The construction sector reported the longest payment delays, attributed to ongoing financial pressures on property developers. Conversely, the textile sector exhibited the highest non-payment risks when overdue payments occurred.

Looking ahead to 2024, there's a cautiously optimistic view among respondents regarding economic prospects, with 53% anticipating improvement. This optimism is buoyed by expected policy support and a potential easing of market competition. However, challenges remain, notably in sectors like textiles where pent-up demand is expected to wane and labor costs may rise.

The survey indicates fierce competition as a significant concern for businesses in 2023, expected to moderate in 2024 as companies navigate through inventory adjustments and shifting demand dynamics. The anticipated slowdown in demand underscores the importance of government intervention to stabilize growth, as highlighted by Tan's insights on potential policy measures aimed at bolstering economic activity.

Despite these challenges, certain sectors such as pharmaceuticals and automotive show promising signs of resilience and growth potential. The pharmaceutical industry's optimism is driven by structural demand from an aging population, while supportive policies for electric vehicles and infrastructure investments are likely to benefit the automotive and construction sectors.

In conclusion, the Coface 2024 China Corporate Payment Survey presents a complex picture of corporate payment practices and economic expectations. While businesses adapt to tighter payment terms and navigate through increased payment delays, there's an underlying optimism for economic recovery supported by targeted policy measures. As companies prepare for the year ahead, strategic adjustments and government support will be crucial in addressing the challenges posed by competitive pressures and shifting market dynamics.

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