8 min read
Key takeaways
- In 2022 Chinese corporates faced challenges to post-pandemic recovery, including continuing lockdowns, slower growth in public and private sector investments, and global complications like geopolitical tension and higher inflation.
- As the economy fully re-opened at the beginning of 2023, the central government continued to prioritize growth and target for business activities in key sectors to return to pre-pandemic levels.
- With the uncertainties and challenges ahead, Chinese companies should focus on formulating a comprehensive plan and sustainable approach in achieving efficiencies on working capital and balance sheet management.
Summary of findings
+4.6 CCC days
+1.6% Cash level
CCC performance worsened for Chinese companies by 4.6 days and cash levels elevated further up by 1.6%. Compared to U.S. peers, CCC is 11 days longer and cash level is 23% higher for Chinese companies.
Tier 1 and Tier 2 has 53.5 days difference.
Tier 1 sized companies have a big lead in CCC performance over tier 2 sized counterparts. This steep increase is partly due to the fast rise in DIO for tier 2 companies.
Based on risk and growth potential analysis, sectors at different stages may adopt relevant strategies including proactive expansion or business transformation, among others.
Working Capital Index
Working Capital Index in China reversed direction after full re-opening
Working Capital Index in China reversed direction after full re-opening
This chart is dated from 2013 through 1Q 2023. It highlights the Working Capital Index of China and the S&P1500.
There were a few impacts during the years that are highlighted in the chart:
- In 2013, a tightening policy in financing.
- In 2016, a fear of economic slowdown in China
- In 2020, the COVID-19 pandemic
- In 2022, lockdown impact and geopolitical tension
- In 2023, 1Q recovery after re-opening
Working Capital Index for China: 100.0 in 2013, 95.9 in 2014, 103.3 in 2015, 112.0 in 2016, 112.3 in 2017, 101.4 in 2018, 104.5 in 2019, 107.6 in 1H 2020, 121.6 in 2020, 114.2 in 2021, 118.9 in 2022, 117.6 in 1Q 2023.
Working Capital Index for S&P1500: 100.0 in 2013, 96.0 in 2014, 93.9 in 2015, 96.8 in 2016, 95.0 in 2017, 88.8 in 2018, 93.3 in 2019, 95.4 in 1H 2020, 103.1 in 2020, 96.7 in 2021, 85.6 in 2022.
- In 2022 Chinese corporates faced challenges to post-pandemic recovery, including continuing lockdowns, slower growth in public and private sector investments, and global complications like geopolitical tension and higher inflation.
- As the economy fully re-opened at the beginning of 2023, the central government continued to prioritize growth and target for business activities in key sectors to return to pre-pandemic levels.
Cash Index
Cash Index rose to a higher level in 2022 but reversed in Q1 2023
Cash Index rose to a higher level in 2022 but reversed in Q1 2023
This chart is dated from 2013 through 1Q 2023. It highlights the Cash Index of China and the S&P1500.
There were a few impacts during the years that are highlighted in the chart:
- In 2016, U.S. rate hike; drop in CNY exchange rate
- In 2020, the COVID-19 pandemic
- In 2022, pandemic lockdown re-emerged; prolonged conflict and geopolitical tension
- In 2023, 1Q recovery after re-opening
Working Capital Index for China: 100.0 in 2013, 99.3 in 2014, 100.6 in 2015, 99.2 in 2016, 92.1 in 2017, 92.8 in 2018, 88.7 in 2019, 95.6 in 1H 2020, 87.5 in 2020, 90.0 in 2021, 94.8 in 2022, 90.6 in 1Q 2023.
Working Capital Index for S&P1500: 100.0 in 2013, 98.8 in 2014, 102.4 in 2015, 103.6 in 2016, 101.1 in 2017, 100.6 in 2018, 105.0 in 2019, 109.9 in 1H 2020, 111.7 in 2020, 99.7 in 2021, 101.9 in 2022.
- In 2022 the Cash Index rose by 4.7 points to 118.9 as companies took a more prudent stance in cash utilization and built up cash reserves for resiliency against risks.
- The trend was reversed in Q1 2023 with the re-opening. As pandemic restrictions lifted, confidence was boosted and companies started to resume spending and investment. Chinese government is also encouraging reinforced R&D spending in key technology areas.
Strategies for the Future
- Build an innovation engine
- Invest in innovation to expand portfolios and enhance competitiveness. For example, consider increasing R&D investment, collaborating with leading firms, and enlarging talent pools.
- Strengthen digitization
- Prioritizing digital transformation can improve treasury management and business performance, increase efficiency and lower costs. Consider enabling electronic payments or investing in software for visualization and dynamic management of capital.
- Expand globally and restructure
- Step up overseas investment with a flexible expansion plan to increase market share and revenue. Create more agile business operations that can better adapt to changing market conditions, domestic competition and customer needs.
- Develop ecosystems
- Build industrial chains to get involved in the upstream and downstream of core business operations to stabilize the supply chain, create operational synergy and manage risk.
- Integrate ESG with business
- Embrace ESG to promote sustainable growth. Consider improving ESG reporting, emphasize projects in green development or optimizing corporate governance structure.
- Empower treasurers
- Treasury plays a crucial role in balancing risk management and potential economic challenges while strategically investing to achieve long-term growth.
Disclaimer
Please kindly note that this is a summarized version of the full report. For detailed findings, please reach out to the J.P. Morgan Payments Advisory team or the authors of the report.
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