Chinese automakers pledged to pay suppliers within 60 days

Affected steel makers and the Chinese government have come together to address the issue of delayed payments from Chinese automakers like BYD and Xiaomi.

China’s top automakers, including BYD, Xiaomi, and Chery, have pledged to pay their suppliers within 60 days, in response to mounting pressure from both the government and the suppliers themselves.

New regulations for Chinese automakers

In an effort to calm the currently tense and financially strained automotive supply chain, at least eight major Chinese car manufacturers, including industry leaders such as BYD and Xiaomi have pledged to settle payments with their suppliers within 60 days.

The announcement was made on Wednesday in response to the growing dissatisfaction among suppliers, particularly steelmakers, over the prolonged payment delays and aggressive pricing demands from carmakers who are engaged in a competitive price war.

The pledge was made after the creation of new government regulations, effective from June 1, that mandate large companies to pay most supplier invoices within two months.

Despite the new regulations, suppliers remain concerned that automakers would find ways to bypass the rules.

The pledges made by automakers Chery, Xpeng, Guangzhou Automobile Group, and FAW Group are an attempt to reassure their stakeholders and urge fairer, more sustainable industry practices.

The pledge also follows a private meeting hosted last week by China’s Ministry of Industry and Information Technology (MIIT). During the meeting, automakers were explicitly told to end practices of extreme competition and undercutting that have destabilized the industry since early 2023.

Suppliers push back against price cuts and payment delays

Tensions between Chinese carmakers and their suppliers have been rising steadily over the past year, due to an industry-wide price war that forced automakers to cut costs drastically. Some of the cost-cutting came at the expense of their suppliers.

The China Iron and Steel Association (CISA) issued a rare public statement on Tuesday condemning the pressure automakers had placed on steel companies to reduce prices by more than 10% while also delaying payments by months.

CISA painted a grim picture of the industry’s current liquidity crisis and the association stressed that steel companies are now operating on razor-thin margins. The association urged Chinese automakers to take cues from Japanese car manufacturers who maintain collaborative, profit-sharing relationships with their suppliers. Such partnerships, CISA argued, have led to consistent quality, innovation, and industry stability.

Yang Hongze, the chairman of Autolink, a company that specializes in intelligent vehicle technology, expressed cautious optimism following the pledges. “It is a pleasant but difficult change for the industry to move towards a healthy development and grow together,” he said.

Yang also noted that suppliers need more specifics about how the new 60-day payment policy will be implemented, especially concerning whether payments will be made in cash or through commercial paper—a method that may cause further delays in liquidity.

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