Key facts
- China is tightening regulations on delayed payments to small and midsize enterprises (SMEs).
- Starting July 1, the maturity for electronic IOUs will be capped at six months.
- The new rules aim to prevent large corporations and government bodies from using non-cash instruments to disguise payment delays.
- The State Council’s State-owned Assets Supervision and Administration Commission (SASAC) has reminded state-owned enterprises of their obligations regarding SME payments.
- The regulations, issued in 2020, cover payments for goods, projects, and services provided by SMEs.
Chinese regulators are intensifying efforts to combat delayed payments to small and midsize enterprises (SMEs), a move that underscores the pervasive influence of local government debt on the broader economy. Effective July 1, new regulations will limit the maturity of electronic IOUs to a maximum of six months. This measure is designed to prevent large corporations and government entities from using these non-cash instruments as a means to conceal payment delays.
The State Council’s State-owned Assets Supervision and Administration Commission (SASAC) has recently reiterated the obligations of central state-owned enterprises and other major market players concerning payments to SMEs. These reminders are based on the Regulations on Ensuring Payments to Small and Medium-sized Enterprises (SMEs), which were issued in 2020. These regulations apply to government organs, public institutions, and large enterprises when purchasing goods, projects, and services from SMEs. The rules also emphasize the importance of establishing internal systems to prevent payment arrears. Compliance involves ensuring project budgets are adequate before contract conclusion, strengthening contract management to ensure fairness in payment terms, and avoiding unreasonable payment conditions or tying up SME funds. SMEs are defined by the National Bureau of Statistics based on criteria such as employee numbers, business revenue, and total assets.