Six years after China Evergrande Group began showing signs of financial distress that culminated in its bankruptcy and the founder’s life sentence, some creditors, including Zhu Yinfien’s Shanghai-based water-purification equipment firm, are still awaiting payment. Zhu said Evergrande owes her company 500,000 yuan (approximately HK$585,000). She noted, however, that delayed payments are widespread across the construction sector, and the challenge extends beyond any single debtor.

China’s private sector, which accounts for roughly 80% of urban employment and 90% of new jobs, has faced growing difficulties amid an uneven economic landscape. While sectors such as technology and advanced manufacturing have attracted government support and investment, more traditional industries like construction and manufacturing have been hit hard by the broader economic slowdown. Entrepreneurs frequently cite delayed payments as a major problem, exacerbated by rising compliance costs due to intensified tax enforcement and more rigorous social insurance premium collections.

According to Beijing-based researcher Zhang Xiaojing, weakening profit expectations and declining investment confidence have prompted private companies to accelerate deleveraging efforts. The government has responded, with President Xi Jinping publicly pledging in February 2025 to address the issue of arrears owed to private firms. Since then, authorities have introduced measures aimed at stabilizing the business environment, but some business owners report that practical results have been limited.

The upcoming fifth plenum of the Communist Party’s Central Committee, scheduled for late October 2026, is expected to emphasize strict party governance, including anti-corruption initiatives to ensure effective policy implementation.

Wang Xianhui, who manages a medium-sized construction-related firm near Shanghai, described a common practice in the sector where payment cycles often extend to 12 months or more. He recounted cases where local governments used audits as pretexts to delay payments for years, citing an example of a decade-long delay on a project in central Hubei province. With the property market still struggling after Evergrande’s default, construction remains the epicenter of overdue payments.

In recent years, some developers have started settling debts by transferring unsold apartments instead of cash. Zhu noted that from 2024, a major Shanghai developer began offsetting contract obligations with flats priced at the original, pre-slump sales levels, which exceed current market values by 10% to 20%. Accepting such properties often results in losses for suppliers due to falling housing prices and transaction taxes.

Government data shows that by the end of August 2026, accounts receivable for industrial enterprises above designated size reached 29.48 trillion yuan, growing 9% year on year—outpacing revenue growth. Authorities have mandated that state-owned enterprises must pay cash to small and medium-sized enterprises (SMEs), and a government website has been established for reporting delayed payments. However, some SMEs find these measures insufficient or difficult to utilize, particularly contractors lacking formal contracts.

Delayed payments are not unique to China. In Europe, business-to-business transactions typically require settlement within 60 days, with late payments accruing statutory interest well above benchmark rates. Analysts suggest that China might consider imposing financial penalties to strengthen enforcement and restore liquidity and confidence more broadly.

Another pressing issue for private companies is compliance with social insurance premium regulations. Contributions in China can reach up to 38% of wages, higher than in some developed economies. Many SMEs have historically underpaid premiums by remitting minimum statutory amounts, balancing operational costs against employee benefits. This informal practice is widespread but has attracted increased scrutiny from tax authorities since 2019, when national tax agencies assumed collection duties.

Richard Zhu, head of a medical-device contract manufacturer in Shanghai, recently began fully paying social security premiums as a precaution amid rising enforcement. Although the company generates 20 million yuan in annual revenue, additional compliance costs have pushed combined social insurance and housing fund expenses close to 40% of the firm’s profit margin. Zhu has responded by significantly reducing new hires, reflecting broader concerns about how heightened social insurance obligations affect employment.

Researchers have also found that stricter premium collection correlates with declines in new job postings. Ye Jingjing, a professor at Zhongnan University of Economics and Law, reported a 7.2% reduction in new listings on a major online recruitment platform since 2019, coinciding with a 16% increase in company social security contributions. Labour-intensive firms with higher wage-to-cost ratios are especially vulnerable.

Experts emphasize the need for policymakers to carefully balance enforcement with economic realities. Tony Peng, an independent social security researcher, suggested targeted support measures such as rebates or subsidies for companies that comply fully and avoid layoffs, to mitigate negative labor market impacts.

Despite current difficulties, some business leaders remain cautiously optimistic about the future. Richard Zhu remarked that economic cycles bring both ups and downs, and expressed hope that challenges will ease during the next economic recovery.