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China’s private sector
EconomyChina Economy

China cracks down on big firms delaying payments to cash-strapped SMEs

New rules require large companies to pay suppliers within 60 days, with penalties for deliberate delays and incentives for clearing backlogs

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A man walks past the headquarters of the People’s Bank of China, the central bank, in Beijing. Photo: Reuters
Xinyi Wuin Beijing

Beijing is planning a carrot-and-stick approach to stop large corporations from exploiting their market dominance to delay payments to small and medium-sized enterprises (SMEs) as part of a broader campaign to curb cutthroat competition.

“In recent years, we have observed that some large enterprises – in order to save on financial costs and gain a competitive advantage – have exploited their dominant market position to delay payments to suppliers,” said Cao Yuanyuan, director of financial markets at the People’s Bank of China (PBOC).

“This not only harms the interests of SMEs, but also exacerbates ‘involutionary’ competition and imbalances between supply and demand on a macro level,” Cao added, referring to the self-defeating cycle of excessive competition that has taken hold of several sectors.

Speaking at a press briefing in Beijing on Monday, Cao said public financial data showed that some large enterprises were capable of paying SMEs on time but refused to do so, forcing smaller cash-strapped suppliers to take out bank loans and effectively absorb the larger companies’ financing costs.

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