Coronavirus: China’s cash-strapped companies were struggling to get paid even before the pandemic hit

Firms in China are facing increasingly long payment terms, with delays becoming more burdensome for cash-strapped companies due to the coronavirus pandemic

New research from insurance firm Coface shows the worsening cash-flow picture for many firms at the end of 2019, which will deteriorate as the economy slows

Reading Time:3 minutes

Small business owners in China are struggling with delayed payments that have been made even worse by the coronavirus. Photo: EPA-EFE

Published: 6:30am, 2 Jun 2020Updated: 11:12am, 2 Jun 2020

In recent years, it was common for Zhejiang-based fabric and furniture manufacturer Xie Jun to wait two or three months to get paid for shipments made to domestic and foreign clients.

But now, almost halfway through 2020, he is still waiting to be paid for goods he sold in November last year, as a slowing economy, compounded by the coronavirus pandemic which has severely disrupted trade and supply chains in China and around the world, puts huge pressure on the country’s small factories.

“We can do nothing about it,” Xie said. “Since February, it has been said that all small and medium-sized enterprises (SMEs) have resumed production, but in fact, everyone has a serious shortage of orders and cash flow. How can we pay suppliers on time? Triangular debts among SMEs will be more severe than ever this year.”

The pandemic has created a domino effect, whereby indebted companies are unable to repay their suppliers, who are subsequently unable to pay their own suppliers, sending ripples through China’s supply chains.

05:59

Coronavirus: What’s going to happen to China’s economy?

New analysis of 1,000 Chinese companies from credit insurance firm Coface shows firms were already struggling to get paid at the end of 2019, even before the pandemic struck, with 37 per cent of companies at that point waiting more than four months to be paid, a sharp rise from the previous year.