State-Owned Enterprises Not Repaying Debts to Private Companies in China... 62% Have Overdue Payments

Unable to Receive Payment, Bank Debt Again
SCMP "Returned to Triangular Debt After 30 Years"

Jin Mo (Chinese), who supplies materials to the state-owned power grid in northeastern China, is anxiously struggling to collect overdue payments. The client company has been delinquent on 120,000 yuan (approximately 22.26 million KRW) related to a project completed three years ago. The client company has not responded to calls, and although Jin tried to visit the company directly, he was unable to even enter the premises. Last month, a businessman attempting to collect 220 million yuan in overdue payments from a local government in the southwestern region was arrested, sparking controversy on local social networking services (SNS).

Hong Kong's South China Morning Post (SCMP) reported on the 19th that private enterprises in China are in a situation where they cannot collect overdue payments from state-owned enterprises or local governments. It explained that companies are being cornered as payment delays coincide with difficulties caused by weakened demand and overproduction.

[Image source=AFP Yonhap News]

According to SCMP, COFACE, a French global credit insurance and risk management company, recently conducted a 2024 payment survey of Chinese companies, revealing that 62% of the 1,020 respondents reported overdue payments. This is a sharp increase compared to last year's response rate of 40%. The proportion of companies expressing trust in their clients dropped from 33% to 16% during the same period.

SCMP pointed out, "The government attempted to resolve the 'triangular debt' problem, where companies incur more bank debt due to delayed payments, but the pain of overdue payments continued," adding, "The triangular debt, which first troubled China over 30 years ago, has returned amid the economic downturn and prolonged real estate market slump." It further emphasized, "Some private companies like Jin’s suffer cash flow hits due to overdue payments, weakening their willingness to expand business," and stated, "This is causing the world's second-largest economy, China, to stall the main engine for post-pandemic recovery."

According to the COFACE survey, the construction sector is particularly rife with payment delays due to financial pressures. The average overdue period was 84 days, about 20 days longer than the overall industry average of 64 days.

A private subcontractor affiliated with a state-owned construction company in central China explained, "Payment delays are very common in the construction industry," adding, "We do not plan to participate in large-scale real estate projects." He further stated, "We will focus only on small-scale projects supported by the government and backed by solid finances." The subcontractor lamented that his company is owed 11 million yuan by state-owned enterprise clients for three projects completed in 2019 and is currently caught in a vicious cycle of financial crisis, unable to pay lower-tier subcontractors.

Wang Qichang, a member of the Zhejiang Provincial Private Economy Research Center, explained, "The money the government uses to repay debts mainly comes from tax revenues," adding, "Only when companies boldly invest and innovate to provide products that consumers want to buy can the government collect more value-added tax, income tax, and sales tax." He emphasized, "Authorities must take concrete measures to restore corporate trust, rather than merely issuing statements and documents."

Wang also stressed, "It is important to eliminate excessive nationalism in the business sector," referring to recent online attacks and boycott campaigns against Nongfu Spring, China’s largest bottled water producer. He criticized, "These actions damage corporate sentiment and hinder development."

This content was produced with the assistance of AI translation services.