Many listed environmental companies are facing a financial crisis problem due to payment defaults, affecting their business operations. According to an analysis of the 2022 annual reports of 187 listed environmental companies, 68.45% of them experienced an increase in accounts receivable . About 75% of these 187 companies had an accounts receivable to revenue ratio exceeding 30% . Worse still, the latest data showed that this ratio exceeded 30% in almost 90% of 228 listed environmental companies in the first half of 2023. Additionally, among these 228 companies, the average accounts receivable of state-owned enterprises was 2.725 billion CNY, around 3.7 times higher than that of private companies . Among the 2022 top 50 Chinese environmental enterprises ranked by revenue, only 14 were private companies.

High accounts receivable influence the cash flow of enterprises, causing several spillover effects, such as affecting companies’ ability to pay the material suppliers and employees, and even leading to bankruptcy. In China, this problem is caused by the practice of customers (in this case usually local governments) making payments upon the completion of the entire project, which usually lasts a few years and causes more uncertainties. For example, sometimes the changes in the leaders or the relevant officials of the local governments can lead to the delayed payment due to difficulties in coordination. Furthermore, local governments have become debt-ridden in recent years due to the high costs of fighting Covid and tax reduction and exemption during the pandemic, which leads to a systemic level of default payments.

To address the problem, both governments and enterprises have taken some action. For instance, the Communist Party of China Central Committee and the State Council issued the Opinions on Boosting the Growth of the Private Economy. The Opinions emphasised that delayed or declined payments due to reasons such as internal personnel changes should be prevented. In addition, Chinese authorities announced a plan to issue 1 trillion CNY in government bonds transferred to local governments to support local economy recovery. However, this fund will be mainly used for post natural disaster reconstruction projects. Since natural disasters occur more in summer, which means that money will probably be provided next year, and this cannot ease local fiscal pressure in the short term. The amount is also not sizeable compared to the funding base, accounting for only around 2% of total revenues for the local governments . Meanwhile, environmental enterprises are trying to pursue payments of owed money through different approaches, such as creating a detailed debt collection process and suing the debtors.

The accounts receivable problem impacts different environmental enterprises to varying extents. For example, the annual report of Grandblue Environment, a listed state-owned enterprise providing environmental services such as solid waste treatment, energy, water supply and drainage, mentions the accounts receivable risks affecting net cash flow, but its business operations are not threatened . However, some companies are facing more challenges. TUS Environmental Science and Technology Development, a private enterprise, which offers solutions to solid waste disposal and water pollution, and Orient Landscape a SOE providing services such as wastewater management and scrap metal recycling, are suffering important case flow constraint. Due to the high accounts receivable, both companies are unable to pay their clients as scheduled, resulting in several lawsuits filed by various creditors. They are even included in the ‘List of Dishonest Persons Subject to Enforcement’ because they failed to fulfil their debt payment obligations.