Latest News:  
Beijing   Overcast/Moderate rain    9 / 12 ℃  City Forecast

English>>China Business

Triangular debts threaten manufacturers: analysts

(Xinhua)

08:01, October 29, 2012

BEIJING, Oct. 28 (Xinhua) -- "Triangular debts," a liquidity problem resulting from payment delays between companies, are posing a threat to businesses in China's iron and steel, machinery and coal sectors, analysts have warned.

Compounded by a slowing economy, tightened monetary supply and lackluster business performance, the lurking debt risk, which once hit China in the 1990s, could take a huge toll on the real economy.

One recent case of a company weighed down by triangular debts revolved around Maanshan Iron & Steel Co., Ltd., an industrial giant in east China's Anhui Province.

The company announced at the end of September that its subordinate logistics company had filed 23 lawsuits against suppliers that could not pay back their debts.

A couple of weeks later, the company itself filed a restructuring application because it was also unable to pay back a pile of debt owed to downstream clients.

According to Wind, a leading China-based economic database, the turnover of listed companies on the A-share market rose by 8 percent year on year in the first half of 2012, whereas their accounts receivable surged by 37 percent year on year to stand at 2.2 trillion yuan (349.15 billion U.S. dollars).

By the end of June, as much as 18.6 percent of their business revenues came from items that were purchased on credit, with payments not yet received, Wind's data showed.

In the machinery industry, the problem of collecting debts is "not only between manufacturers and agents," said Qi Jun, an analyst at the China Construction Machinery Association. "Many manufacturers are defaulting on payments to their component suppliers."

Between industries, the liquidity problem may also spread from downstream sectors upward.

As the primary suppliers of machinery manufacturers, steel companies are also having a hard time. China's major steel enterprises have seen their accounts receivable exceed 50 billion yuan so far this year, but the amount they have to pay stands at some 300 billion yuan.

Likewise, the coal industry, which itself has suffered from overcapacity and price slumps since the beginning of 2012, is waiting for steel companies to pay in order to stay afloat.

The cash flow problem now involves more small- and medium-sized enterprises (SMEs), said an analyst with the Development Research Center of the State Council who declined to be named.

A report released in mid-October regarding financing for SMEs in the Yangtze River Delta showed that over half of the SMEs in the region were cash-strapped, while about 30 percent have had operational difficulties due to clients' defaults on debts in the last six months.

SMEs usually do not have much say in negotiations with larger companies, and as suppliers of raw materials and components, the final lenders, they have to bear the brunt of triangular debts, industry insiders said.

Earlier media reports said authorities, including the Ministry of Industry and Information Technology and the Ministry of Commerce, have initiated joint probes into the debt risks.

News we recommend:
"Made in China":Charming the World "Made in China":A Boon for the Masses "Made in China":A Blessing for Businesses
"Made in China":The Bitter Blessing From 'Made in China' to 'Created in China' China's tourism industry reaps golden harvest
Remedies for economic challenges  The construction of nuclear plants Rays of hope for manufacturing

Email|Print|Comments(Editor:厉振羽、张洪宇)

Leave your comment0 comments

  1. Name

  

Selections for you


  1. Weekly review of military photos

  2. Astronomy pictures of the week

  3. Russian aerobatic team

  4. Typhoon Son-Tinh brings gales

  5. Shanghai enveloped in haze

  6. Wal-Mart to open 100 more stores in China

  7. Acrobatic Art Festival kicks off

  8. Mystery man can fly.It's true!

Most Popular

Opinions

  1. Understanding key to Sino-US relations
  2. Kindergarten abuse cases becoming major worry
  3. Reform required for China's economic growth
  4. External markets crucial for business success
  5. Fears that yuan rise will hit exports unfounded
  6. Tax reform crucial to stable growth
  7. No sharp decline for property prices
  8. Japan to bear consequence of breaking promise
  9. How to hard sell China's soft power
  10. Commentary: China's top spot for global FDI

What’s happening in China

Shanghai enveloped in haze

  1. Beijing toughens road measures for CPC congress
  2. Exhibition on China's progress opens in Beijing
  3. Apple iPhone 5 on sale in China by December
  4. Panda habitat to be built in Sichuan
  5. Timekeeper jailed after ringing bell early at exam