India offers a better business climate as compared to China: Survey by Coface

Highlights

• Coface has assigned a higher rating to the business climate in India (A4) as compared to China (B) 
• Standard payment terms are longer in China than in India (an average of 60 days compared with 30 days in India).
• The Indian growth is more balanced than China’s and improvement signs are already perceptible
• The Indian companies can count on a more reliable business climate. More companies take legal recourse for recovery of dues as compared to China
• The use of open account payment terms, a relatively unknown practice ten years ago, has now become common practice in both the countries
• Payment survey by Coface done for the first time in India

Coface – world’s leading trade receivables management company has recently concluded a survey of corporate credit risk management in China and India. According to this survey, Indian companies have fared much better on the corporate payments front than China. Coface has also assigned a higher rating to business climate in India than China. For the year 2009, its ratings for business climate in India is ‘A4’ as against ‘B’ for China.

The survey, conducted for the first time in India and the sixth time in China, found that while standard payment terms are around 30 days in India, they are much longer in China at about 60 days.

The use of open account payment terms, a relatively unknown practice ten years ago, has now become common practice in both the countries. Open account sales are offered by nearly all companies in China and India – but it is higher in India at 72% as against 65% in China.

And the trend seems to be becoming more widespread, with the use of open accounts rising by 11 points in China compared with the previous survey results. While in India, one out of three companies interviewed indicates having increased the number of open accounts granted over the last year. This development of open accounts is the result of buyers’ liquidity problems in China, whereas in India, it is used to face market competition in a competitive environment.

However, the use of increasingly longer payment terms raises the question as to what extent payment conditions are under control. Both in India and China almost all the companies questioned are recording overdue payments. In India, invoices are generally being paid within 30 days following the due date; whereas in China, 75% of overdue payments are going over the 30 days after the payment due date.

Both countries seem to have succeeded in limiting the impact of the crisis. The growth will remain high in 2009, in China (around 7%). However, major structural changes are being implemented. In order to face the crisis, China focuses on high-level range industries. In some sectors, especially the ones in low value-added industries (textiles, shoes, toys) and the industries suffering from overcapacity (automotive, construction, steel), the number of actors will decrease. These sectors will experience most of payment default risks.

The Indian growth is more balanced and improvement signs are already perceptible (Q1 2009 growth of 5.8% vs 5.1% during Q4 2008). The level of overdue payments should remain relatively stable. However, companies are calling for external financing and a prolonged scarcity of the credit on international financial markets could affect them. In case of a new crisis, payment defaults could rise.

In China, most of the companies prefer amicable negotiation to recover. The Indian companies can count on a more reliable business climate and have largely recourse to legal actions to recover.

According to Mr. Samuel Jesuratnam, Country Head, Coface India, “The survey aims to understand the general status of the credit management and domestic payment experiences of companies based in India”

This is the 1st edition of our survey on the Indian territory and the 6th for China.” recalls Yves Zlotowski, chief economist of Coface. “The remarkable resistance of these economies to the crisis regarding growth does not mean there is no payment defaults’ risk, in particular the Chinese private sector is still under pressure!”

Methodology:
The two surveys were conducted among 556 companies based in mainland China and 694 companies in India.

For China, the interviewed companies are divided up as followed:

• 8% are state owned, 27% are private limited companies, 44% are wholly-owned by foreign businesses, 18% are joint ventures and 2% are collective owned companies.
• 72 % are in manufacturing, 8 % are in services and 20 % are traders or wholesalers.

For India, interviewed companies are divided up as followed:

• 48% are private limited companies, 24% are public limited companies, 13% are proprietary concern and 14% are partnership firms.
• 70% are in manufacturing, 3 % are in services and 27 % are traders or wholesalers.

About Coface
Coface's mission is to facilitate global business-to-business trade by offering its 130,000 customers four business lines to fully or partly outsource trade relationship management and to finance and protect their receivables: credit insurance, factoring, ratings and business information and receivables management. Thanks to the worldwide local service delivered by 7,000 staff in 65 countries, over 45% of the world's 500 largest corporate groups are already customers of Coface.

Coface is a subsidiary of Natixis whose share capital (Tier 1) was 13.4 billion euros end December 2008.

About Coface in Asia
Since 1994 Coface has established a network of companies and partners in Asia, today active in 10 countries and organised around 3 regional platforms in Singapore, Hong Kong and Tokyo, with respectively 146, 158 and 65 employees.

With more than 4 500 clients, Coface is leader of Trade Receivables management in Asia and offers credit insurance, factoring, company information and receivables management to its clients.

Since 2003, Coface is the technical partner and reinsurer of Ping An Property & Casualty Insurance in China, for its offer in domestic credit insurance.

Coface established a Liaison office in India in early 2000 which was converted into a subsidiary in February 2001. Coface India has technical partnership agreements with IFFCO-Tokio Marine General Insurance Company and ICICI Lombard General Insurance Company for its offer in domestic and export credit insurance.