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The Lightbulb Goes Off In China: "If You Don't Pay Me And I Pay Others, I Am The Sucker"

Tyler Durden's picture




 

Just last month we highlighted how the collapse in China's shadow-banking system, it's concomittant credit crunch, and vicious circle of commodity-financed credit creation could spread contagiously to the rest of the world - through refusal to pay. It seems we were prophetic as Reuters confirms that money owed to Chinese firms by their customers has reached a record high. As China's economy continues to cool, companies are waiting longer and finding it harder to get paid for goods and services they've already sold, leading to record amounts of receivables - and potential write-offs - on corporate balance sheets. As one Chinese business owner exclaimed: "If you don't pay me and I pay others, aren't I just a sucker? I'm not that stupid." Receivables on average (across 2300 firms) reached $160.49 million at the end of last year, more than double the $65.9 million average at the end of 2009 and median collection time for billings crawled up from 71.4 days to 90.42 days (the first time above 90 days). "It's a pretty loud warning bell," warns a Peking professor.

 

 

As Reuters reports,

As China's economy continues to cool, companies are waiting longer and finding it harder to get paid for goods and services they've already sold, leading to record amounts of receivables - and potential write-offs - on corporate balance sheets.

 

At Longyuan Construction Group Co, an east China builder of high-rise offices, apartments and highways, receivables last year inched up 4.9 percent to 4.1 billion yuan ($657.3 million), while on average collection times extended to 95.2 days, compared with 76.3 days for 2011.

 

Slow collection of money owed is causing Longyuan to delay its own payments to steel and cement suppliers, Zhang Li, the company's board secretary, told Reuters, in a ripple effect that is being repeated across the economy.

 

"If you don't pay me and I pay others, aren't I just a sucker?" said Zhang. "I'm not that stupid."

The details are ugly...

A Thomson Reuters survey of data on China's more than 2,300 stock market-listed firms illustrates the impact on corporate payments, with company receivables - the accounting term for money owed by customers - on average reaching $160.49 million at the end of last year, more than double the $65.9 million average at the end of 2009.

 

Over the same period, the median collection time for billings crawled up from 71.4 days to 90.42 days. It was the first time China's market-listed firms averaged more than 90 days in a decade.

 

"It's a pretty loud warning bell," said Paul Gillis, an accounting professor at Peking University's Guanghua School of Management. "Companies cannot pay-off their receivables in a slowing business cycle. Some of these receivable may not get paid, which means you'll see a lot of write-offs in the future."

And even uglier for some industries...

Average collection periods for receivables extended to more than 196 days for electrical equipment makers, 188 days for companies in the building products' sector and more than 171 days for machinery manufacturers, Reuters data shows.

 

"Credit is tightening, funding costs are higher, and companies are delaying payments," said Ivan Chung, Moody's Investors Service's senior vice president for Greater China credit analysis.

But don't worry - it will all be fixed in 3 to 5 years...

To collect unpaid bills, some Chinese firms are taking the increasingly common - though often fruitless - step of launching lawsuits against deadbeat customers.

 

...

 

Winning a claim in court doesn't necessarily mean a company will collect, especially if the losing firm has gone broke or has had its assets stripped. "It takes one or two years at best, and may take as long as five years," Zhang said.

As we explained previously,

While apologists of China's collapse have been quick to point out that China's credit collapse would be largely a domestic issue, with little foreign creditor exposure at either the public debt, or private - corporate - debt levels, one thing nobody can deny is that if and when Chinese trade routes grind to a halt, the downstream impacts would be devastating, and spread like wildfire as the offshore supply chain is Ice 9'ed.

And sure enough that is what Reuters reports above is happening... which means only one thing...

We explained precisely this a few days ago in "What Is The Common Theme: Iron Ore, Soybeans, Palm Oil, Rubber, Zinc, Aluminum, Gold, Copper, And Nickel?" As briefly noted above, these are all the commodities that serve as conduits in China's numerous Commodity Funding Deals. Only no more.

Which means that far form merely crushing exporters who suddenly are dealing with Chinese importers who have torn apart contracts, obviously with no recourse, suddenly China's entire "hot money" laundering infrastructure (which as explained over the weekend, has gold performing an even greater role than copper) is about to collapse.

And when the counterparties of China's hundreds of billions in CCFDs decide to also get out of Dodge and unwind these deals (amounting to hundreds of billions in notional), only to find the underlying commodity has not only been re-re-rehypotecated countless times and has been sold, then there is truly no way of saying what happens next.

 

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Thu, 05/15/2014 - 20:06 | 4764703 PAWNMAN
PAWNMAN's picture

Confuscious says...Don't piss on my back and tell me its raining!

Thu, 05/15/2014 - 20:38 | 4764787 SafelyGraze
SafelyGraze's picture

OT - tonight was our Spring Concert at my school.

maw-maw came to it and said it was "very nice"

for the first half, we sang "anthems of the world", which was national anthems of, like, malawi and burma and uzbekistan and peru and stuff.

we wore different colored belts and all that, which was cool.

and we said the pledge of allegiance in all the different languages and faced the different flags and what not. very beautiful.

for the second half, we did our "Americana" program. which included numbers like

"Satan, thou friend of every trav'ler"
"Hiramba ngu thu bengadau"
"O Country great! What more could I ere give thee"
"God save the Queen" medley
"Ling dok truo dow-gu"
"Lady Gaga" medley

 

Thu, 05/15/2014 - 22:45 | 4765177 NoDebt
NoDebt's picture

It's too late in the evening for most to appreciate the humor in that, but thank you for posting it.

And, obviously, the down-arrow-boys are out tonight.  Everyone gets a couple of downies, apparently.

Fri, 05/16/2014 - 00:39 | 4765444 imbtween
imbtween's picture

Why does anybody give a shit about arrows?

Fri, 05/16/2014 - 01:55 | 4765531 Serenity Now
Serenity Now's picture

Yeah, that was great.  Long live multiculturalism!  And death to America!  (Or something like that.)

Thu, 05/15/2014 - 20:48 | 4764793 Xibalba
Xibalba's picture

Piss on back concept only works for roundeye.  They can keeping  'trickle down'.  Chinese too smart for roundeye games,  and always thinking about In God We Trust (aka. cash)!  Roundeye only wants ribeye.  He dreams about one day being skinny so he can eat MOAR!

Thu, 05/15/2014 - 22:21 | 4765098 SilverRhino
SilverRhino's picture

Hah, Chinese bitching about getting fucked over when they fuck over ANYONE where they even think they can get away with it.   

NEVER do business with the Chinese.   Something my mentor taught me a long time ago .... but then he was a LOT less PC and called them the "Jews of the Orient" 

 

Thu, 05/15/2014 - 20:07 | 4764709 RaceToTheBottom
RaceToTheBottom's picture

Yep, they need a shister class.  That will solve everything

Thu, 05/15/2014 - 20:12 | 4764728 kaiserhoff
kaiserhoff's picture

Pay day loans.

Guido is your friend..., until he isn't.

Thu, 05/15/2014 - 20:14 | 4764726 Yen Cross
Yen Cross's picture

 

      I'll gladly pay you next year for the rehypothecated copper( X3) you bought from me in 2013.

   We have lots of barges and bull dozers for lease, round eye... No need for shovels, mountains of copper.

  Excuse me if I have [ -0 ] empathy for the Chinese.

Thu, 05/15/2014 - 20:14 | 4764732 kaiserhoff
kaiserhoff's picture

Perhaps if people could be sure they actually own what they have bought,

  they would be more inclined to pay for it?

Thu, 05/15/2014 - 20:27 | 4764755 Yen Cross
Yen Cross's picture

 Enjoy the link kaiserhoff

  Last you spoke,you're in the apparel business. You certainly understand the flow of commodities.

 
http://www.chinamoney.com.cn/fe/Channel/2780842

Thu, 05/15/2014 - 22:35 | 4765147 Mistress Raindrop
Mistress Raindrop's picture

China, china, china.  Give me a break.  Bitches.

Fri, 05/16/2014 - 00:14 | 4765395 prains
prains's picture

you have lived too long in a low oxygen environment......nobody should be this stoopid for this long

Fri, 05/16/2014 - 08:11 | 4765816 Jafo
Jafo's picture

OK, just to make it a bit more multi-cultural and display my blatant racism as well -

Q. What does India stand for?

A. I'll Never Do It Again (Boom! Boom!)

The problems are not limited just to China but when China goes so does the entire BRICS

Thu, 05/15/2014 - 20:18 | 4764741 nonclaim
nonclaim's picture

I was going to make a sarcastic point with riot gear selling well but then a red alert light bulb went off reminding me that some stage agencies are procuring machine guns...

Thu, 05/15/2014 - 20:25 | 4764757 ebworthen
ebworthen's picture

Right; and if the U.S. Government bails out failed banks/insurers/corporations and neo-Nazi putsch's and African warlords why should I pay taxes?

Thu, 05/15/2014 - 20:42 | 4764805 Will To Live
Will To Live's picture

Lawsuit in China...Ha ha ha ha ha ha ha ha

Thu, 05/15/2014 - 20:54 | 4764832 Yen Cross
Yen Cross's picture

  Z/H peeps? I just posted a direct link to china's "attempt" at transparency!  

  Overnight lending, REPO's, rate adjustments ect... Where's the Fed (realtime) equivalent?

  It can't be done by any sovereign! Too many variables. The fact that china is attempting, tells me that "China policy" turning inwards. as if we didn't already know that<>

   Expect much lower (export) growth out of China.

 

 

Fri, 05/16/2014 - 00:19 | 4765405 prains
prains's picture

thanks Yen, it looks like the chicom trolls are out tonight to junk your work!!

Thu, 05/15/2014 - 20:52 | 4764842 Ban KKiller
Ban KKiller's picture

Arthur Anderson moved to China, no worries, check is in the mail. 

Fri, 05/16/2014 - 00:26 | 4765424 Zeta Reticuli
Zeta Reticuli's picture

Ah. The Three Big Lies Of The Eighties.

Fri, 05/16/2014 - 08:21 | 4765845 Jafo
Jafo's picture

Arthur Anderson moved to China?  This ought to be fascinating.  Does anyone want to speculate that the audit division of AA will be giving a clean bill of health to Chinese companies that are on the verge of insolvency?  Will creditors and shareholders of these companies be able to sue AA under Chinese law or will the partners of AA pay the Party representatives large bribes to make it all go away.  I will be watching this with a great deal of interest.

Thu, 05/15/2014 - 20:58 | 4764854 Al Huxley
Al Huxley's picture

Luckily, the backbones of American industry - TWTR, FB, LNKD, etc.  will not be affected as they neither manufacture nor sell anything.

Thu, 05/15/2014 - 21:02 | 4764867 kchrisc
kchrisc's picture

If you owe the banksters of the DC US and are paying on it, you are the sucker.

Don't pay. Put the money in "garden gold" and "steel and lead." When their house of cards comes tumbling use your gold, steel and lead to restore yourself and the American country.

 

The American  people really need to realize that a choice is coming whether they like it or not: They can wither away in poverty and misery with everyday a fight to just survive or fight to take back the county, the American country, from these treasonous criminals and murderers.

The choice is coming: Persecution or Revolution.

 

The Four Rs
Rejection: Quit paying, quit obeying, quit playing
Revolution: It is inevitable, so prepare, as they are.
Retribution: The guilty must answer for their crimes against the American people and the Constitution.
Restoration: Restore the Constitutional republic.

Thu, 05/15/2014 - 21:14 | 4764905 mc225
mc225's picture

how about something like, 'everybody be mellow' instead? that would be better than believing in a piece of paper or constitution like people of european ancestry seem so wont to do.

Thu, 05/15/2014 - 21:46 | 4764995 kchrisc
kchrisc's picture

Good point, but the idea is for people to unite NOW against these criminals. Once they are removed, the people can debate and make changes. If we, the American people, argue now over what the goal is, then they will win by default.

No, they are criminally in violation of the Constitution and the American people and need removed and held accountable for their crimes first. All else should come second.

Thu, 05/15/2014 - 21:09 | 4764888 Winston Churchill
Winston Churchill's picture

90 + days.Pussies.
Back in the 1970's I was lucky to get paid by the English GE, and British Aerospace quicker than 180.
Maybe they need some jewish accountants running their firms.

Fri, 05/16/2014 - 08:38 | 4765912 RadioactiveRant
RadioactiveRant's picture

Calendar days or three-day working week days?

Sat, 05/17/2014 - 23:56 | 4770693 Leraconteur
Leraconteur's picture

Accounting buckets, by convention, are absolute counts of calendar days.

August 28 - March 1 = 180.

Thu, 05/15/2014 - 21:16 | 4764912 jackstraw001
jackstraw001's picture

Fuck 'em. Reap what you sow, Bitchez.

Thu, 05/15/2014 - 21:32 | 4764962 WMM II
WMM II's picture

"And when the counterparties of China's hundreds of billions in CCFDs decide to also get out of Dodge and unwind these deals (amounting to hundreds of billions in notional), only to find the underlying commodity has not only been re-re-rehypotecated countless times and has been sold, then there is truly no way of saying what happens next."

 

 

ok, i'll give it a try.

the chinese, being the patient folk that they are, have not put into effect a mechanism that won't keep them from putting them there ccfds all into a chronolgical basket and then sort out the winners and losers.

they chinese, being the richest government on the planet, will simply buy the time needed by selling t's to repatriate the yuan, strengthening it, and turning china into an import nation like the u.s. of a. is about to become a was.

ok, back to tv.

 

:)

Thu, 05/15/2014 - 21:49 | 4765000 whidbey-2
whidbey-2's picture

Cash has iits virtues, credit requires hostesty as well.  But in the end Credit has been the magic of economicis if it has just one more requirement.  The Roman's had a rrule: a vendor could not sell what he does not own or has a line of credit to secure its payment before the end of the business year.  This has gone for governments and men alike.  The rules are so simple, but first one must undertand the vitrues. The history of bankruptcy is human history.

Thu, 05/15/2014 - 22:59 | 4765220 Leraconteur
Leraconteur's picture

Their short-term thinking and greed knows no bounds.

Next will be this:

"If you pay me, and I don't pay others, YOU are the sucker."

They don't cogitate what that means, they just want your money, to keep it, and to not pay you or others or deliver goods and services.

China is the hot girl whom everyone puts up with her and her shit, until that moment when everyone figures out she is not worth the hassle.

Thu, 05/15/2014 - 23:41 | 4765337 Julian
Julian's picture

Commodity collaterisation 101

http://www.mit.edu/~zhuh/TangZhu_CommodityCollateral.pdf

A domestic Chinese firm in the import-export business applies for US dollar credit from a bank to buy commodities in the international market. These commodities are shipped to China and pledged as collateral to raise CNY (the Chinese currency) funding on a secured basis, with a haircut. The CNY cash is subsequently invested, on an unsecured basis, in assets, loans or projects that generate a higher expected return. At the maturity of the US dollar loan, all legs of the trades are unwound, and the commodity is sold in the spot market. As long as the return on the unsecured loan in CNY is sufficiently high, this trade is profitable. In other words, commodity is used as the means to capture the risk premium in China's credit market

Fri, 05/16/2014 - 00:51 | 4765462 CheapBastard
CheapBastard's picture

I'd hate to be JCPenney's creditor... might as well kiss your money goodby.

I had to use their so-called "Customer Service" recently and simply put....

THEY SUCK!

Fri, 05/16/2014 - 00:52 | 4765464 q99x2
q99x2's picture

Could get mighty dog hungry after 90 days.

Fri, 05/16/2014 - 06:20 | 4765614 honestann
honestann's picture

The entire modern global economy is a mammoth game of musical chairs.  The only difference between the modern global economy and conventional musical chairs is...

... as the music plays, the number of chairs is gradually but constantly getting smaller (as the predators-that-be steal them).

When the music finally does stop...

... you better hope you live in a self-sufficient home in the boonies.

Fri, 05/16/2014 - 09:05 | 4766013 shovelhead
shovelhead's picture

"When the musics over...turn out the lights."

Jim "Lights Out" Morrison.

 

 

Fri, 05/16/2014 - 08:22 | 4765848 Grouchy Marx
Grouchy Marx's picture

When China's manufacturing companies fail, so will the supply chain to the West, including Western firms that are described as manufacturers but don't make anything. Retailers will fail also. It won't be pretty. Imagine nearly empty Walmarts.

Fri, 05/16/2014 - 09:03 | 4766009 shovelhead
shovelhead's picture

Look for big upswing in Tong collection agency businesses.

River not only float pig.

Fri, 05/16/2014 - 11:33 | 4766684 U4 eee aaa
U4 eee aaa's picture

Maybe invest in Chinese crowbar companies (for collections)

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