China Targets Payment Delays to Protect Small and Medium-Sized Enterprises

People's Daily reported that the General Office of the State Council released a circular outlining ten concrete measures across four key areas to tackle payment collection difficulties faced by small and medium-sized enterprises. The directive targets challenges stemming from large corporations that extend payment periods through market advantages, focusing on improving industry payment rules, supervising large enterprise practices, regulating non-cash instruments, and enhancing financing support. The policy specifically focuses on large companies possessing sizable accounts payable alongside ample cash-like assets rather than adopting a blanket approach for every firm with prolonged accounting periods. This targeted approach seeks to distinguish malicious arrears from standard commercial disputes, which can arise from factors including project quality disagreements, acceptance standard variances, and genuine cash flow strains. To translate broad principles into operational rules, the circular clarifies four key elements: the starting point of accounting cycles, payment methods, acceptance standards, and maximum payment deadlines. It mandates that cash must be used whenever payment methods are unspecified, promotes industry-specific settlement rules in model contracts, and integrates payment enforcement into credit supervision systems through monitoring, joint interviews, disciplinary actions, and disclosures. The People's Bank of China is reinforcing accounts payable disclosure for bond-issuing enterprises in the interbank market while helping firms replace payables with loans and bonds. Through targeted support actions for private and inclusive micro and small enterprises, inclusive micro and small loan balances registered an 8.3% year-on-year increase by the end of June 2026.

Delayed corporate payments strain the liquidity of smaller enterprises, forcing them to secure bank financing that elevates broader financing expenses and weakens monetary policy transmission. In response, regulators are pairing restrictions on large enterprise arrears with targeted liquidity tools to curb systemic financial risks.