Authorities, industry association ramp up protection for auto parts SMEs

China is stepping up efforts to ensure fair competition and strengthen supply chain resilience in its auto sector, with new measures rolled out to standardize concrete payment practices and better protect small and medium-sized suppliers.

In a bid to foster a more collaborative and sustainable industry ecosystem, the China Association of Automobile Manufacturers (CAAM) on Monday issued new guidelines on standardizing payment terms in procurement contracts between automakers and suppliers.

In response, the Ministry of Industry and Information Technology voiced support for the move, saying the detailed guidelines will help ensure commitments are honored and will play an important role in advancing the healthy development of the auto sector.

"The initiative provides detailed best-practice requirements that will help ensure automakers deliver on their payment commitments, a move that carries significant weight in promoting standardized and healthy development across the auto industry," the MIIT said.

The ministry also pledged to continue taking multiple steps to foster a collaborative and mutually beneficial ecosystem between automakers and auto parts suppliers, advancing the sector's sustainable growth.

The guidelines lay down clear requirements for key aspects of transactions, including order confirmation, delivery and acceptance, payment and settlement, and contract duration.

For example, buyers are required to complete inspections within three working days of receiving goods. Payment terms begin once products are accepted and inspected, and the payment period must not exceed 60 calendar days.

Regarding payment methods, the guidelines encourage the use of cash payments, such as bank transfers and wire transfers, as well as banker's acceptance (BA). For small and medium-sized suppliers, only cash or BAs are recommended.

The initiative further said that if the unit price of supplies has not yet been agreed upon, the buyer shall make an advance payment based on a certain proportion of the most recent contract price or the agreed development price. In principle, this proportion should be no less than 80 percent of the latest contract price — or 50 percent of the development price.

It also encourages automakers and suppliers to build long-term and stable partnerships, with each contract carrying a validity period of no less than one year.

The initiative is intended to support the implementation of revised regulations on ensuring payments to small and medium-sized enterprises, released by the State Council, China's Cabinet, earlier this year.

In June, 17 leading automakers nationwide publicly pledged to support the central initiative and keep supplier payment periods within 60 days.

This time around, the 17 major domestic automakers — including GAC Group, Seres, Changan Auto, Dongfeng Motor, Xiaomi and Li Auto — have to date voiced support for the new CAAM guidelines, saying they will actively implement the initiative to drive closer cooperation and healthier growth across the supply chain.

"Timely and full payments to suppliers is the most basic form of respect for partners and a key to ensuring supply chain stability," said Xiaomi in its statement on Monday, adding the company will keep honoring its commitment to settle accounts within 60 days.

Changan Auto said it has fully honored the 60-day payment commitment through an innovative "delivery date plus 10 days settlement" model, which has also created a standardized and efficient payment process for suppliers.

GAC Group also noted in its latest statement that it has strictly adhered to the principle of "no more than 60 days" for supplier payments for 28 years since its establishment. The company has also built a comprehensive management system covering order issuance, inspection, settlement and payment, while leveraging digital platforms to ensure full-process transparency and prevent any form of payment delays.