Managing credit risk has gained importance in China across all industries over the years. About 85.4% of surveyed companies have some procedures in place to manage their credit risk in 2010, says a new study. The adoption of credit insurance as a credit management tool is getting popular in China. 42.3% of respondents reported adopting this tool in 2010, which is 31% higher compared to 2009 (32.3%).

“Despite the improvement in both credit sales and overdue payment in Mainland China, companies are not optimistic about the future overdue situation and are worried about the government’s withdrawal of stimulus policies. Effective and efficient credit management measures from specialists to mitigate risks is critical for China’s enterprises in 2011,” says Richard Burton, Deputy CEO, Asia Pacific for Coface.

The eighth annual survey of corporate credit risk management in China – conducted in the fourth quarter of 2010 by Coface, also reveals improvement in both credit sales and overdue payment in Mainland China though survey also revealed enterprise concern on 2011 economic outlook.  

The survey says that 87.6% of respondents reported offering credit sales in 2010, up from 79.9% in 2009, and 64.9% in 2008, achieving a compound annual growth rate of 16% between 2008 and 2010. The increase is resulted from the strong domestic consumption spurred on by various incentives and central government’s stimulus policies. According to the survey, 53% companies increased credit sales due to keen competition in the domestic market. Amongst them, 44.6% increased credit sales to penetrate new domestic markets verse 31.7% in 2009. This indicated that Chinese corporations are becoming more aggressive in expanding in the domestic market.

Meanwhile, the general overdue situation in China has improved. 67.4% of companies experienced overdue payment in domestic sales in 2010, which is 6.4% lower than 2009 (72%) and 26% lower than 2008 (91.2%). Only 6.2% of respondents experienced payment overdue for more than 120 days in 2010, a reduction of 53% compared to the result of 2009 (13.2%).

Amongst various industries, the pharmaceuticals sector experienced the most significant improvement as no companies reported overdue payment of more than 2% of their domestic sales for more than 12 months in 2010, dramatically dropping from 18.8% in 2009. The sector grew in 2010, resulting from rising domestic consumption due to government’s health care reform and other factors such as increasing awareness of a generally aging population, and growing demand in the export market. China exported US$29 billions of health care products from January to September 2010, which is 27% more than 2009. 

“As long as the China healthcare reform continues and the mainland authorities remain supportive, this sector is expecting a double digit growth in 2011,” says Burton.