Debates about private sector financing often focus on bank credit access. But for many Chinese businesses, the more pressing problem is getting paid for work already completed. Payment delays from SOEs and local governments create cascading liquidity crises throughout supply chains.
The Payment Problem
State-owned enterprises and local governments routinely delay payments to suppliers— sometimes for months or years. These delays force private suppliers to finance working capital they shouldn't need, creating liquidity stress that bank credit can't easily solve.
Supply Chain Transmission
Payment delays cascade through supply chains. A tier-one supplier waiting for SOE payment delays its own suppliers, who delay their suppliers, amplifying the initial shock. Small businesses at chain ends face the worst effects.
Policy Implications
Addressing private sector access to credit while ignoring payment practices treats symptoms rather than causes. Enforcement of payment terms and reforming SOE procurement practices would do more for private business health than additional bank lending quotas.