In Depth: Taming the Wild West of China’s Supply Chain Finance

Regulators are clamping down on misconduct on the electronic IOU trading platforms that industry insiders say have become chaotic, and sometimes hurt the small suppliers they were designed to help

As more and more large companies have set up their own electronic supply chain finance platforms, the sector has become increasingly complex and chaotic. Photo: AI generated

Tech behemoths Ant Group Co. Ltd., JD.com Inc. and Tencent Holdings Ltd., as well as automakers like BYD Co. Ltd., have muscled in on the low-profile but critical world of supply chain finance (SCF), the system of company IOUs that keeps the wheels of business turning.

Previously dominated by the country’s banks, SCF — which involves systems and technology that help businesses manage their cashflow to avoid liquidity problems and lower their financing costs — is now awash with electronic platforms. Many are owned by banks, but increasingly they are built independently by heavyweight enterprises such as BYD and state-owned grain giant COFCO Corp., and by third-party fintech companies.

Now, after a decade of untrammeled growth, regulators are tightening oversight of these electronic platforms that some industry insiders say have become chaotic, and sometimes hurt the small suppliers they were designed to help because of the power of the companies at the top of the supply chain who control the system. There are also concerns that the lack of supervision and market data means the trillions of yuan of electronic IOUs issued via these platforms could be distorting the money supply and potentially leading the central bank to misjudge liquidity in the economy.