Chinese carmakers commit to 60-day supplier payments amid regulatory pressure
China's leading state-owned automakers —
Dongfeng Motor Group
, Guangzhou Automobile Group Co. (GAC), and
China FAW Group
— have pledged to standardize payment periods to suppliers at 60 days. The announcements, made on Tuesday, follow growing regulatory scrutiny over delayed supplier payments and opaque financing practices in the
automotive supply chain
, reports Bloomberg.
The move aims to improve capital flow and financial transparency in the industry, which has been caught in a domestic price war leading to aggressive cost-cutting and extended payment cycles.
Delayed Payments Functioning as Quasi-Debt
Amid fierce competition, many Chinese carmakers have been delaying payments to suppliers for several months, effectively using them as a form of quasi-debt financing. This trend has sparked concerns from regulators, including the Ministry of Industry and Information Technology (MIIT), which recently held discussions with top electric vehicle (EV) manufacturers.
Officials warned that the practice is unsustainable and poses risks to smaller suppliers who often lack the financial buffer to absorb prolonged payment delays.
New Rules to Protect Small and Medium Enterprises
To address these issues, Chinese authorities in March issued new regulations requiring large companies to settle bills within 60 days. The rules also prohibit firms from coercing suppliers into accepting non-cash payments such as promissory notes as a way to delay settlement. These regulations officially come into force this June.
The latest pledges from major carmakers appear to be in line with these new rules and are seen as a step toward cleaning up the industry's financial practices.
BYD's Financing Tactics Under Spotlight
Leading EV maker BYD Co. has been particularly noted for its reliance on a promissory note system called Dilian (or Dilink in English), which it uses to pay suppliers at a later date. As of May 2023, BYD had issued 400 billion yuan ($55.7 billion) worth of such notes.
Bloomberg data shows BYD took an average of 275 days to pay its suppliers in 2023. A report by GMT Research estimates the company's real net debt at 323 billion yuan — significantly higher than the 27.7 billion yuan it reported — primarily due to these deferred payments.
Industry Shift Toward Financial Discipline
The commitments by major state-backed automakers could signal a broader industry shift toward financial discipline and more equitable supply chain practices.
As the new payment rules take effect, regulators are expected to closely monitor compliance to ensure that small and medium suppliers are protected in China's rapidly evolving auto sector.
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