Eliza Wong
– Major Chinese automakers pledged 60-day payments to suppliers in June 2024
– Large suppliers report improved payment cycles while SMEs face implementation gaps
– Automakers use tactics like payment term redefinitions and payment method shifts
– Suppliers fear retaliation for complaints despite government oversight mechanisms
– Industry-wide reform requires sustained effort beyond initial commitments
The Payment Reform Landscape
China’s automotive sector reached a critical juncture in June 2024 when 17 major automakers signed the “Automotive Industry Fair Competition Market Order Commitment,” pledging to pay suppliers within 60 days. As the first 60-day milestone passes, our investigation reveals a complex reality: while some large suppliers celebrate timely payments, small and medium enterprises (SMEs) face persistent challenges. The Ministry of Industry and Information Technology (MIIT) reports progress from industry leaders like FAW Group, GAC Group, and Seres, yet supplier testimonials indicate the 60-day payment period remains elusive for many.
Progress at the Top Tier
Several automakers have implemented structural changes to honor the 60-day payment period. FAW Group established a cross-departmental task force that will transition to 100% cash payments for SME suppliers by June 2025, replacing the previous cash-plus-bank-acceptance-drafts model. They’ve already audited over 2,000 SMEs for their dynamic management list.
GAC Group’s Payment Discipline
GAC Group implemented the 60-day payment period as an ironclad rule, creating an end-to-end payment monitoring system from order placement to settlement. Their payment structure now features 95% cash settlements with only 5% using discounted bank acceptance drafts.
Seres’ Innovative Approach
Seres developed an “in-factory factory” model where supplier production lines integrate directly into their manufacturing facilities, shortening logistics and payment cycles. They’ve also established emergency mechanisms to advance payments to cash-strapped suppliers.
Yu Xiao (余晓), a Tier 1 supplier representative, confirms improvements: “Companies like XPeng, Geely, and Seres proactively approached us about adjusting payment terms. For Geely, the 60-day payment period now includes both cash and drafts, while XPeng shifted from 90-day cash payments to 60-day cash settlements.”
The SME Payment Gap
Despite these advances, our nationwide supplier survey reveals stark disparities. Small and medium suppliers report that the 60-day payment period commitment remains largely unimplemented for them. Liu Ping (刘平), whose company supplies four of the 17 signatory automakers including SAIC Motor, Geely, XPeng, and JAC Motors, states: “None of my clients have truly fulfilled the promise. Drastically shortening payment cycles challenges automakers’ cash flow management.”
The scale of the challenge becomes clear when examining accounts payable data. Twelve leading automakers held over 1.1 trillion yuan in supplier payables for 2024, with BYD (244 billion yuan), SAIC Motor (241.1 billion yuan), and Geely Holding (182.4 billion yuan) topping the list. These companies averaged 170-day payment cycles – nearly triple the promised 60-day payment period.
Hidden Implementation Tactics
Automakers have developed creative approaches to technically comply while maintaining extended payment cycles. A Tianjin-based supplier explains: “Previously, payment terms were 70 days from warehouse receipt and invoicing. Now they’ve shifted to 60 days from production line acceptance invoicing, which actually extends the cycle by moving the starting point.”
Payment Method Shifts
Several suppliers report automakers substituting cash payments with bank acceptance drafts or electronic payment vouchers. A Zhejiang supplier notes: “Superficially, payment cycles appear shorter, but more payments now come as drafts instead of cash. At least we receive the draft within the 60-day payment period.”
The Enforcement Challenge
Chen Wen (陈文), an autonomous driving components supplier, describes the reality: “The 60-day payment period sounds ideal, but automakers respond with ‘wait a bit’ or ‘let’s see.’ This becomes a test of relationships and bargaining power.” He cites a state-owned enterprise partner that contractually commits to 30-day payments but consistently delays: “If we press for payment, they lecture us about their corporate reliability. As suppliers, we can’t afford to burn bridges.”
Industry analysts note automakers benefit from extended payment cycles as interest-free financing. One explained: “Prolonged supplier payment cycles function like interest-free loans. Automakers transfer financial costs to suppliers while avoiding bank loan interest.”
The Complaint Dilemma
To address implementation gaps, MIIT launched an “Online Problem Reporting Window” in July 2024 through the National Complaint Platform for Defaults on SME Payments. This specialized channel allows suppliers to report automakers failing to implement the 60-day payment period or violating the Regulations on Guaranteeing Payments to Small and Medium Enterprises.
Despite this mechanism, suppliers express reluctance to file complaints. Multiple SMEs cite fear of retaliation: “Complaining risks relationship damage. Automakers could lower our quality inspection scores or withhold final payments worth hundreds of thousands,” one Guangdong supplier revealed. Another added: “If we report clients, future business disappears. Automakers know we’re powerless.”
The reporting system’s limitations compound these concerns. Suppliers to automakers outside the initial 17 signatories lack reporting options. “The complaint window only lists specific automakers. If your client isn’t included, there’s no channel,” noted a supplier.
The Path Forward
Implementation of the 60-day payment period requires sustained industry-wide effort. MIIT plans to develop standardized payment guidelines and contract templates to formalize supplier payment processes. These measures aim to foster collaborative manufacturer-supplier relationships and promote sustainable industry development.
Yu Xiao (余晓) cautions about potential ripple effects: “As payment cycles shorten, automakers will likely pressure suppliers on pricing during annual negotiations. Everyone understands this trade-off.” Industry observers note that true reform requires addressing the power imbalance between automakers and suppliers, particularly SMEs.
The 60-day payment period initiative represents a significant step toward equitable industry practices, but its ultimate success depends on consistent enforcement and transparency. Suppliers must feel secure reporting violations without jeopardizing business relationships. As payment reforms evolve, they’ll serve as a crucial test case for balancing corporate interests with supply chain fairness in China’s automotive sector. Industry stakeholders should actively monitor implementation and support standardized payment practices that benefit the entire ecosystem.
