In a bid to ease rising tensions within the auto supply chain, major Chinese car manufacturers have pledged to settle payments with their suppliers within 60 days. The move follows mounting pressure from regulators and growing frustration among steelmakers, who have long complained about delayed payments and aggressive pricing tactics that have strained the industry.

Regulatory Push Spurs Commitments

The pledges are in response to new rules introduced by Chinese authorities in March, mandating that large enterprises pay suppliers within a 60-day window. These rules officially took effect on June 1, aiming to improve financial stability and accountability in supply chains. While the policy shift was welcomed, many suppliers expressed concern over potential loopholes that could allow companies to circumvent the intent of the regulations.

In an effort to show compliance and good faith, several automakers—including leading players like BYD and Chery, as well as smaller firms such as Xpeng and Xiaomi—announced on Wednesday their commitment to abide by the new payment timeline. State-owned giants Guangzhou Automobile Group and FAW Group also made similar pledges earlier in the week.

Price War Fallout and Supply Chain Tensions

The announcements come on the heels of a government-led meeting last week, where China's Ministry of Industry and Information Technology reportedly urged carmakers to bring an end to the aggressive price war that has gripped the market since early 2023. Authorities warned that excessive competition was creating instability and weakening the broader automotive ecosystem, particularly impacting suppliers who operate on thin margins.

The China Iron and Steel Association (CISA) added its voice to the growing concerns this week, issuing a public statement on Tuesday highlighting the financial distress faced by steel producers. According to the association, some carmakers have demanded price cuts exceeding 10% over the past year while simultaneously delaying payments for months—creating severe liquidity issues for key suppliers.

CISA went further, urging Chinese automakers to adopt a more sustainable model akin to that of Japanese carmakers. The association pointed to the Japanese approach of fostering long-term, mutually beneficial partnerships that prioritize stable profits for suppliers and support innovation and product quality throughout the value chain.

Suppliers Call for Transparency

While the pledges mark a step in the right direction, some suppliers remain cautious. Yang Hongze, chairman of Autolink, a provider of intelligent vehicle technology, said the new commitments were “pleasant” but called for further clarity on implementation.

"More details are needed," he said, "such as whether payments will be made in cash or commercial paper, and how the 60-day countdown is calculated—whether it starts from the invoice date, delivery date, or contract signing." Yang emphasized that while the industry’s shift toward healthier practices is welcome, the transition will be complex and challenging.

A Sector Under Pressure

The auto industry in China has been under relentless pressure since a sweeping price war erupted in early 2023. With manufacturers slashing prices to maintain or grow market share, profitability across the sector has taken a hit.

In May, Great Wall Motor chairman Wei Jianjun publicly warned that the industry was on a perilous path, likening the situation to that of Evergrande—the now-defunct property developer whose collapse sent shockwaves through China’s real estate sector. While Wei did not name any automakers specifically, his comparison underscored the financial risks accumulating beneath the surface.

The strain is not limited to manufacturers and suppliers. Chinese car dealers have also raised concerns in recent weeks, calling on automakers to curb excessive inventory loading. Dealers say the pressure to absorb unsold cars is eroding their cash flow, compressing margins, and in some cases, driving them out of business.

Toward a More Sustainable Model?

The pledges from carmakers suggest that industry leaders recognize the urgency of stabilizing supplier relations and improving financial discipline. But implementation will be key. As suppliers await specifics, and as regulators watch for compliance, the next few months will likely reveal whether these commitments mark a turning point or serve as stopgap measures in an increasingly volatile market.

What remains clear is that the future of China’s automotive sector depends not just on innovation and market share, but on rebuilding trust and financial resilience across its complex, interdependent value chain.

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