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Time of India
2 days ago
- Automotive
- Time of India
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.
Mint
2 days ago
- Automotive
- Mint
Chinese Carmakers Agree to Standardize Supplier Payment Periods
(Bloomberg) -- Several of China's state-owned automakers have pledged to standardize bill payment periods for their suppliers to 60 days after authorities raised concerns about supply chain financing. At least three carmakers, including Dongfeng Motor Group Co., Guangzhou Automobile Group Co. and China FAW Group Co. issued similar statements on Tuesday saying their payment plans are aimed at promoting efficient capital flows across supply chains in the automotive industry. Chinese carmakers, embroiled in a domestic price war, have been seeking lower-cost components and delaying payments to suppliers by months, creating a form of quasi-debt financing. Regulators including the Ministry for Industry and Information Technology last week addressed the issue of supply chain financing with the heads of major electric vehicle manufacturers on concerns the price war was becoming unsustainable. Chinese authorities issued new rules in March to protect small and medium enterprises, stipulating that bills should be paid within 60 days and that large firms shouldn't force smaller businesses to accept non-cash payments such as promissory notes or use these methods to delay payments. The regulations will take effect in June. Supply chain financing is common in the auto industry. BYD Co., China's best-selling car brand, has a promissory note system called Dilian, or Dilink in English, that it uses as a form of payment to its suppliers and can be redeemed at a later time. The platform had issued 400 billion yuan ($55.7 billion) worth of notes as of May 2023, the last time that BYD disclosed such information. BYD took an average of 275 days to pay suppliers in 2023, Bloomberg compiled data show. A report by accounting consultancy GMT Research puts BYD's true net debt at closer to 323 billion yuan, compared with the 27.7 billion yuan listed on its books as of the end of June 2024, through delaying its payments to suppliers and other related financing. More stories like this are available on
