Asian countries face ‘moderate’ rise in insolvency risk

Allianz Trade expects most Asian countries to face a “moderate” increase in insolvencies this year, including China.

As it released its Global Insolvency Report, the German insurance group’s trade credit insurer says this uptick will be the result of  the “sluggish” growth outlook, with subdued global and regional demand, and prolonged worries in construction activity and real estate investments.

However, 2025 should bring about fewer insolvencies in some countries, notably New Zealand (+1% expected for 2024 and -3% in 2025), Hong Kong (+5% and -8%), Singapore (+0% and -5%) and South Korea (+3% and 18%).

At the regional level, this would translate into a 5% year-on-year increase in Asian insolvencies, from a fall of % in 2023, followed by a 2% rise in 2025, implying that Asia will not be back to the number of pre-pandemic insolvencies by next year.

“China has so far proved to be successful in maintaining a declining trend in insolvencies, with fewer than 6,500 cases in 2023, i.e. 45% below the record levels of 2019-2020. However, we expect the weaker economic outlook, with real GDP heading towards lower trend growth and financing issues, to lead to a moderate rebound in business insolvencies (+4% in both 2024 and 2025), above pre-pandemic numbers (i.e. 6,700+ in 2024 compared to 4,700 cases on average annually over 2000-18),” says Allianz Trade.

“Worries would remain more on domestic activities, notably consumer-oriented sectors, construction and real estate, while export-oriented firms should continue to benefit from China’s strong position in the global supply chain. In Hong Kong, the post-Covid normalisation of the economy failed to lower the number of insolvencies until 2023 despite the boost from private consumption,” it adds.

In early February, Allianz Trade published a report specifically on China – China – keeping the Dragon awake – that concluded with its real estate and foreign investment engines sputtering; the country desperately needs new drivers of growth.

“The real estate sector has gone from hero to zero since mid-2021: we estimate real estate development has been 26% lower than its pre-pandemic trend. But the long-term perspectives are also grim, with a rapidly aging and shrinking population and slowing urbanisation. Meanwhile, foreign investment into China has started to soften for short-term tactical reasons, but long-term structural factors such as slower growth, regulatory barriers and worsening geopolitics are also reducing the economy’s attractiveness to foreign investors,” it says.

Allianz Trade adds that, on the bright side, exports are still going strong as China remains a critical global supplier.

“Although exports will not be one of the main drivers of growth anymore, China’s role as a critical supplier seems unchanged. The number of imports for which China is a critical supplier has been increasing over time and across the world’s major importers. The intensity of critical dependencies on China varies across importers, with the US being the most exposed: nearly 50% of its imports from China are critical dependencies,” says the credit insurer.

“Furthermore, a shift in concentration of critical dependencies towards higher value-added sectors is clearly visible, especially when it comes to EU imports from China. As a result, China’s strong position in the global supply chain will continue to provide some support to growth,” it adds.

Looking ahead, China’s wants higher value-added manufacturing such as the ‘New Three’ industries of electric vehicles, batteries and solar energy products to become the main drivers of growth.

Allianz Trade said that Chinese cars have taken the world by storm in just a few years as the rapid expansion of electric vehicles (EVs) drives significant growth in auto sales both domestically and internationally. Despite a recent slowdown in global demand, it expect EVs to remain the bright spot in the auto sector amid the ongoing green transition, and value for price is the key advantage that places Chinese EV makers in a good position.

“China’s dominance is also strong in the battery sector, commanding nearly 56% of the global EV battery market share. It has made remarkable progress in renewables as well, accounting for more than 80% of the global solar module manufacturing capacity and more than 80% of solar cell exports. But while China seems well-positioned in these emerging industries, its current dominance and future growth could be tested by the chips war, protectionism, geopolitical tensions and the risk of creating other situations of excess capacity, inventories and leverage,” says the credit insurer.

Nevertheless, China is heading towards lower growth, adds Allianz Trade. “We now expect the Chinese economy to grow by +3.9% on average over 2025-2029. This compares with forecasts at +5% before the Covid-19 pandemic broke out, and +4.5% before the real estate crisis unfolded. In our baseline scenario, we do not see Japanification taking place for the Chinese economy, in part thanks to important differences when it comes to growth of the middle class and the progress in urbanisation. But Chinese policymakers urgently need to restore consumer confidence, put in place long-term consumer-focused policies and unleash the high level of precautionary savings,” concludes the insurer.