In Depth: China Lifts the Lid on Multitrillion-Yuan Corporate IOU Market

1. In recent years, Chinese regulators have begun scrutinizing the little-known but massive market for corporate IOUs—mainly “electronic accounts receivable certificates”—which have enabled large firms like BYD Co. Ltd. to postpone supplier payments on a grand scale. This system has placed financial stress on the country’s vital industrial supply chains, as suppliers have had to wait months for payments or accept losses to cash out early [para. 1].

2. By November, the value of these outstanding IOUs reached 2.57 trillion yuan ($370 billion), according to the National Internet Finance Association of China (NIFA). The data, from 193 reporting platforms out of 244 that registered their information, only represents part of the actual market size, highlighting the scope and complexity regulators face in mapping and overseeing these transactions [para. 2].

3. Officially termed “electronic accounts receivable certificates,” these IOUs are typically paid out to suppliers by large manufacturers in industries such as automotive. Suppliers receive the certificates instead of cash, which they can only redeem for full value after holding them for periods up to six months. Alternatively, if they need liquidity sooner, suppliers can sell the IOUs at a 5.2% to 7.2% discount, as was the case for one of BYD’s suppliers [para. 3][para. 4][para. 5].

4. Major companies, including BYD, established affiliated platforms to issue these IOUs. By May 2023, BYD’s Di Lian platform had issued over 400 billion yuan in certificates. This practice allowed BYD to convert much of its debt into interest-free payables, helping it maintain a relatively low interest-bearing debt ratio (less than 5%) despite having a high liability-to-asset ratio of 75% at the end of 2024 [para. 6][para. 7][para. 8].

5. While large companies benefit, suppliers are left carrying the burden—essentially providing interest-free loans or incurring significant discount costs if cashing out early. Small suppliers especially face challenges: besides high discount rates, they must navigate multiple platforms and banking procedures, driving up costs by 3% to 5% [para. 9][para. 10].

6. Many big firms have further profited by setting up affiliates to buy discounted IOUs from suppliers, a practice known colloquially as “eating from both ends.” This effectively turns industrial giants into financial intermediaries, prompting the regulatory crackdown now underway [para. 11][para. 12].

7. In response, the State Council’s new rules (June 2025) mandate that major companies pay smaller suppliers within 60 days. Some suppliers report already seeing faster cash payments from BYD since late October, reducing payment cycles from about eight months to two or three months and saving hundreds of thousands of yuan annually in financing costs [para. 13][para. 14][para. 15][para. 16].

8. BYD has since closed the Di Lian unit involved with the IOUs, and other automakers like Great Wall Motor and Chery are winding down similar operations. Battery giant CATL is also trying to reduce its use of certificates, indicating a broader industry shift [para. 17].

9. The pivot in regulation is anchored in Document No. 77, released in April, which classifies IOU platforms as “supply chain information service institutions” and prohibits financial activity unless properly licensed. Platforms must now focus on information management and undergo a two-year rectification period, overseen by NIFA [para. 18][para. 19][para. 20][para. 21].

10. Despite the push, practical obstacles remain. Many companies are reluctant to share granular business data and banks struggle with the bespoke, high-frequency nature of supply chain transactions. In place of private IOUs, regulators now promote the “supply chain bill”—a standardized, digitally transferrable, and regulated instrument, though adoption remains slow and currently only a minority of platforms are connected to centralized systems [para. 22][para. 23][para. 24][para. 25][para. 26].

11. Nevertheless, compliance demands are forcing industry players to pivot. Firms like Cloudchain Group are shifting focus to supply chain bills, as regulatory changes mean the volume of corporate IOUs has likely peaked, signaling a major transformation in China’s supply chain finance ecosystem [para. 27].