(Yicai) Sept. 22 -- China’s top leadership has once again urged local governments and state-owned enterprises to pay back the money they owe to private companies, as overdue payments are weighing on these businesses and the economy.

Great attention must be paid to resolving the issue because it is related to corporate production, operations, and investment expectations, the State Council said at an executive meeting held on Sept. 20 to review and approve the Special Action Plan for Cleaning Up Arrears of Corporate Accounts. The issue is also relevant for the economy's continued recovery, it added.

The State Council requires local authorities and SOEs to take the lead in solving the problem of delinquent accounts, which can help capital flows and create a positive demonstration effect, Luo Zhiheng, chief economist and head of the research institute at Yuekai Securities, told Yicai.

The economic downturn and gap between fiscal revenue and expenditure mainly account for the overdue payments to firms, Luo said. The downturn, tax cuts, and fee reductions have led to a fall in fiscal revenue, he added, along with less local government income from land sales as a result of the sluggish property market.

As local governments are the stronger party in their dealings with companies, they tend to delay payments when their cash flow is relatively tight, Luo pointed out.

In July, the central government called for the prevention and cleaning up of outstanding debts to private firms to boost the private economy. Measures included strengthening penalties for those in charge, demanding the regular disclosure of debt arrears, improving the credit constraint mechanism in the bill market, enhancing the complaint and credit supervision systems, and reinforcing the exposure of deliberate arrears.

Resolving the issue of SOEs in arrears to private firms should fundamentally rely on the rule of law, said Wen Laicheng, a professor at the Central University of Finance and Economics. 

Including these arrears in business environment indicators, widening government financial resources and cutting expenditure, resolving the conflict between revenue and spending, and boosting the economic recovery are the key fixes for the problem, Luo pointed out.

According to audit reports from various Chinese regions, local governments and SOEs in central Henan province had new outstanding corporate debts worth about CNY9.6 billion (USD1.3 billion) last year. Meanwhile, several provinces, including Jiangsu, Jilin, Guangdong, and Gansu, each owned hundreds of millions of Chinese yuan to companies.

In the first seven months of this year, the average accounts receivable collection period by private industrial companies was 64 days, longer than 98 percent of the historical data, according to figure from the National Bureau of Statistics.

Editor: Martin Kadiev