In China, competition is fierce, and in many cases suppliers do not get paid on time. Rather than improving, the situation appears to be deteriorating.
BYD Co, the world’s largest electric vehicle manufacturer by production volume, has gained notoriety for its harsh treatment of suppliers, raising concerns about the long-term sustainability.
The case also highlights the decline of China’s business environment, and the growing risk of a cascading wave of corporate failures.
BYD generally does not follow China’s Negotiable Instruments Law when settling payments with suppliers. Instead the company has created its own proprietary supply chain finance system called the “D-chain,” through which it issues “e-debt certificates.”
Suppliers can either redeem the certificates upon maturity or transfer them to others within BYD’s supply chain network.
However, such digital instruments are simply bilateral credit agreements between BYD and the supplier.
So how long does it take to get paid? BYD typically follows a net 30 to 60 payment cycle, with the D-chain system adding an additional six to eight months to that period. In practice, that stretches the total payment period to between eight and 10 months.
That approach greatly reduces BYD’s financial pressure, but is to the considerable disadvantage of its suppliers.
By tying its suppliers to the D-chain platform, BYD can integrate them into its own financial ecosystem, tightening control over its supply chain.
The model also allows BYD to circumvent traditional financial oversight, as it avoids issuing regular commercial paper and standard banking transactions.
Last year alone, the D-chain platform accumulated more than 400 billion yuan (US$55.64 billion) in interest-free payables, enabling BYD to save substantially on interest expenses.
However, if a supplier requires early payment, it has to offer an interest rebate to BYD — often as high as 5 to 10 percent — further squeezing supplier profit margins.
The issue of long days sales outstanding (DSO) has long been a problematic factor in doing businesses in China. It has worsened amid the ongoing economic slowdown in China.
China’s average DSO rose to 141 days last year — an increase of eight days from the previous year — compared with an average of about 70 days in Taiwan and the US, trade data showed.
Despite being the world’s largest automaker by production volume, BYD relies on cutthroat tactics to sustain its growth — such as selling “zero kilometer used cars,” which are registered, but never driven, at discounted prices to boost sales.
As BYD’s output continues to expand, the financial grip of its D-chain platform on suppliers would only tighten. The situation inevitably recalls the financial crisis of China’s Evergrande Group, which relied on the excessive use of “commercial acceptance bills,” leading to widespread financial damage among its suppliers just a few years ago.
Honda Chen is a senior researcher at the Taiwan Academy of Banking and Finance.
Translated by Eddy Chang
From the Iran war and nuclear weapons to tariffs and artificial intelligence, the agenda for this week’s Beijing summit between US President Donald Trump and Chinese President Xi Jinping (習近平) is packed. Xi would almost certainly bring up Taiwan, if only to demonstrate his inflexibility on the matter. However, no one needs to meet with Xi face-to-face to understand his stance. A visit to the National Museum of China in Beijing — in particular, the “Road to Rejuvenation” exhibition, which chronicles the rise and rule of the Chinese Communist Party — might be even more revealing. Xi took the members
The Chinese Nationalist Party (KMT) and the Taiwan People’s Party (TPP) on Friday used their legislative majority to push their version of a special defense budget bill to fund the purchase of US military equipment, with the combined spending capped at NT$780 billion (US$24.78 billion). The bill, which fell short of the Executive Yuan’s NT$1.25 trillion request, was passed by a 59-0 margin with 48 abstentions in the 113-seat legislature. KMT Chairwoman Cheng Li-wun (鄭麗文), who reportedly met with TPP Chairman Huang Kuo-chang (黃國昌) for a private meeting before holding a joint post-vote news conference, was said to have mobilized her
Taiwan’s higher education system is facing an existential crisis. As the demographic drop-off continues to empty classrooms, universities across the island are locked in a desperate battle for survival, international student recruitment and crucial Ministry of Education funding. To win this battle, institutions have turned to what seems like an objective measure of quality: global university rankings. Unfortunately, this chase is a costly illusion, and taxpayers are footing the bill. In the past few years, the goalposts have shifted from pure research output to “sustainability” and “societal impact,” largely driven by commercial metrics such as the UK-based Times Higher Education (THE) Impact
The inter-Korean relationship, long defined by national division, offers the clearest mirror within East Asia for cross-strait relations. Yet even there, reunification language is breaking down. The South Korean government disclosed on Wednesday last week that North Korea’s constitutional revision in March had deleted references to reunification and added a territorial clause defining its border with South Korea. South Korea is also seriously debating whether national reunification with North Korea is still necessary. On April 27, South Korean President Lee Jae-myung marked the eighth anniversary of the Panmunjom Declaration, the 2018 inter-Korean agreement in which the two Koreas pledged to
RSS