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BYD and other Chinese automakers have vowed to make timely payments to suppliers after Beijing signalled concern at some industry practices amid a cut-throat price war.
Around a dozen domestic carmakers, including Geely, Xiaomi and state-backed GAC and FAW, have in the past day pledged to standardise a 60-day bill payment period for their suppliers with the aim of “promoting high-quality development” and “ensuring supply chain stability”.
The auto groups’ pledges come after Chinese officials signalled a crackdown on the industry’s growing reliance on so-called supply chain financing — a practice of funding operations by delaying payments to suppliers.
China’s Ministry of Industry and Information Technology, the country’s top automotive regulator, warned representatives from 16 major domestic carmakers against aggressive price cuts and mounting unpaid bills to suppliers in a closed-door meeting last week, according to two sources familiar with the matter.
China’s state council issued rules in March requiring large companies to settle bills with smaller supplies within 60 days. The regulations took effect on June 1.
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Chinese auto suppliers have been long forced to endure payment periods as long as 200 days and accept promissory notes from their clients as a payment method.
“If you don’t accept, the clients will just go find another supplier,” a domestic auto supplier who asked to remain anonymous told the Financial Times. Almost all major Chinese carmakers including BYD and Geely have set up a promissory note system for suppliers to trade.
