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[BEIJING] Not since 1999 have China's companies had so much trouble getting customers to actually pay for what they've bought.
It now takes about 83 days for the typical Chinese firm to collect cash for completed sales, almost twice as long as emerging-market peers. As payment delays spread from the industrial sector to technology and consumer companies, accounts receivable at the nation's public firms have swelled by 23 per cent over the past two years to about US$590 billion, exceeding the annual economic output of Taiwan.
The raft of unpaid bills - bigger than at any time since former Premier Zhu Rongji shuttered thousands of state-run companies at the turn of the century - shows how cash shortages at the weakest firms threaten not only banks and bondholders, but also China's vast web of interconnected supply chains.
With corporate bankruptcies projected to climb 20 per cent this year, more Chinese businesses may be forced to choose between two unpleasant options: keep extending credit to potentially insolvent customers, or cut off the taps and watch sales sink.
"There is a knock-on effect through the economy," said Fraser Howie, the Singapore-based co-author of Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise, who has followed the nation's markets for more than two decades. "Part of the end game is default and closure."
It's easy to see why collecting payments is getting harder in China. Businesses and consumers have been squeezed by the deepest economic slowdown since 1990, while overcapacity has fueled an unprecedented stretch of declines in producer prices.
Record corporate debt levels have left many firms struggling to meet their liabilities, with corporate insolvencies jumping by 25 per cent in 2015, according to Euler Hermes.
The world's largest trade credit insurer sees another 20 per cent increase in Chinese bankruptcies this year, the most among 43 major markets.
People's Bank of China governor Zhou Xiaochuan underscored his concern about rising debt levels over the weekend, saying in a speech in Beijing that corporate lending had become too high.
"It's a big problem when you have rising insolvencies, a bad economic environment and less liquidity for small companies," said Mahamoud Islam, the senior Asia economist at Euler Hermes in Hong Kong.
Those headwinds are increasingly visible in Chinese financial statements, where the accounts receivable and sales entries allow analysts to calculate "days sales outstanding", or how long it takes a firm to get paid.
The median collection time of 83 days, compiled by Bloomberg from the most-recent filings of mainland-domiciled firms, has climbed from 79 days in 2014 and 55 days in 2010. It's higher than in any of the world's 20 biggest economies except Italy, and compares with the 44-day median for companies in the MSCI Emerging Markets Index.
Chinese industrial firms take longest to convert sales into cash, at 131 days, followed by 120 days for technology companies and 118 days for telecommunications firms.
While it varies by sector, a reading of more than 100 days is typically a "red flag," said Amy Sunderland, a money manager at Grandeur Peak Global Advisors in Salt Lake City, Utah. She's been avoiding companies in the infrastructure and environmental-protection industries in part because they're taking too long to collect payments.
"It could indicate future cash flow problems" or that a company is booking revenues too aggressively, said Ms Sunderland, whose Global Opportunities Fund has gained an annualized 9.4 per cent over the past three years, beating 94 per cent of peers tracked by Bloomberg.
It's also a sign that sales and profit figures at Chinese companies could be weaker than they appear, given that some customers may fail to pay up. China First Heavy Industries, a producer of industrial equipment, said in January that it expected to report a 2015 net loss of 1.75 billion yuan ($270 million) after boosting provisions for uncollectable receivables.
The company, based in China's northeastern Heilongjiang province, took 1,260 days to secure cash from sales during the 12 months ended September, up from 490 days a year earlier. That's the most among Chinese firms with a market capitalization of at least US$5 billion, data compiled by Bloomberg show. China First Heavy didn't return a call seeking comment.
Granted, giving customers time to pay is a common business practice in many industries around the world, and it could make sense for Chinese companies to extend collection deadlines as they wait for economic growth to recover.
Bloomberg's monthly estimate of Chinese gross domestic product climbed to 6.8 per cent in February from 6.3 per cent the previous month, a sign that monetary easing is starting to bear fruit.
Investors leery of companies with large receivables can still find examples of firms improving their collection times. Dongfeng Motor Group Co, China's second-biggest carmaker, has cut its days sales outstanding to 55 as of June 2015 from 88 in 2013.
All but three of the 26 analysts tracked by Bloomberg have buy recommendations on the stock, which trades in Hong Kong.
Still, most Chinese companies are moving in the opposite direction, even in so-called new economy industries that many analysts anticipated would be sheltered from the nation's slowdown.
The collection time at Tsinghua Tongfang Co, a maker of personal computers and software, has climbed to 107 days from 91 days at the end of 2014. While the increase resulted from the company's expansion, it also heightened the risk of delinquencies, the Beijing-based firm said in a regulatory filing last month.
At Kweichow Moutai Co, the maker of a fiery Chinese liquor popular among government officials, it took 56 days to collect payments as of September, up from 13 days in 2014, the biggest increase among major Chinese companies tracked by Bloomberg.
Receivables spiked as President Xi Jinping's crackdown on corruption and extravagance cut into demand, leaving some distributors short on cash.
The trend of longer collection periods isn't going to end anytime soon, according to Chen Xingdong, chief China economist at BNP Paribas SA. The former World Bank official sees at least two more years of delayed payments as companies struggle to reap better terms from their customers.
"The hard time is still ahead," he said.