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Small and medium-sized enterprises (SMEs) face the worst cash flows. Among the 892 listed companies on the SME board and the growth enterprise board that had published quarterly reports, the cash flows totaled 30.3 billion yuan ($4.79 billion) in the third quarter, down by 81 percent from the figure of 158 billion yuan ($25 billion) in the same period last year.
Real estate companies showed signs of facing capital pressure in their quarterly reports. By the end of the third quarter, the 131 real estate listed companies in the A-share market had reported cash of 191.8 billion yuan ($30.35 billion), with inventories worth 992.2 billion yuan ($156.99 billion). In comparison, they must repay 441.5 billion yuan ($69.86 billion) of debts within one year, including 92.6 billion yuan ($14.65 billion) of short-term loans.
People begin to worry that deteriorating cash flows will get numerous listed companies into "debt chains." The quarterly reports of listed companies indicated that their funds on account behind in payment totaled 1.84 trillion yuan ($291.14 billion) in the third quarter, a year-on-year increase of 21.05 percent, much higher than the growth speed of their net profits. Of the total, more than 200 companies, most in the coal, cement and real estate industries, had 100-percent increase of their funds on account behind in payment. Moreover, about 20 percent of the listed companies faced slower accounts receivable turnover, which means the speed of collecting bills slows down and payment by the other party delays. If the companies to pay face business difficulties, the problem of "debt chains" among companies—the kind that used to bother Chinese enterprises in the 1990s—is likely to occur again.
The purchasing manager index (PMI) decreased in October, echoing the slowed business growth for listed companies in the third quarter. According to figures released by China Federation of Logistics and Purchasing (CFLP), in October China's PMI stood at 50.4 percent, a decline of 0.8 percentage point from the previous month. The index, after a two-month run, dropped again.
The PMI figure issued by the CFLP mainly samples from large and medium-sized enterprises. Yuan Xuya, Director of the Research Institute of Central China Securities Co. Ltd., said the PMI in October showed not only micro-sized and small enterprises faced survival difficulties, but large and medium-sized ones also did.
Zhang said several months ago some private enterprises in Zhejiang and Guangdong provinces went bankrupt and their CEOs disappeared because of excessive debt. Quarterly reports now disclosed the problem of worsening cash flows in listed companies. The government is taking action and the monetary policy may be changed into a "moderately easy" one.
To fight against inflation, China has adopted a tight monetary policy since the second half of 2010. Liquidity was reduced as a result of the measures.
Zhang said today the CPI has dropped. Since food prices, which significantly influence the CPI, may go down because of a bumper harvest of grain and lowering pork prices, it is unlikely to resume the growth momentum in the short term. This provides a good reason to relax the monetary policy.
"Listed companies and other parts of the real economy all hope the government can relax the monetary policy, so that they can solve the difficulty in cash flows," Zhang said.
Yuan said even though the monetary policy could not be relaxed immediately, the central bank might be more flexible in using monetary tools, such as lowering the deposit reserve rate at a proper time.
According to Yuan, under the situation that most banks are facing low capital adequacy ratios and low core capital adequacy ratios, if the deposit reserve rate isn't reduced, banks will have no money to lend.
Yuan thought the central bank is likely to do something in the open market operations, which is another tool of the monetary policy. For example, the central bank may properly reduce the speed of drawing back cash from the market, or even input more cash to the market.
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