The State Council: Payment for project funds must not exceed 60 days! Interest will be charged for overdue payments, effective September 1!

State Council Order No. 728 Regulations on Guaranteeing Payment to Small and Medium-sized Enterprises Effective September 1, 2020. To ensure the timely payment of overdue funds owed to small and medium-sized enterprises, the Regulations stipulate:

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Order of the State Council of the People's Republic of China

Number 728

The "Regulations on Guaranteeing Payment to Small and Medium-sized Enterprises" were approved at the 99th Executive Meeting of the State Council on July 1, 2020. They are hereby promulgated and shall come into effect as of September 1, 2020.

Premier Li Keqiang

July 5, 2020

Regulations on Guaranteeing Payment to Small and Medium-sized Enterprises

Article 1 　To promote timely payments to SMEs by government agencies, public institutions, and large enterprises, safeguard the legitimate rights and interests of SMEs, and optimize the business environment, these Regulations are formulated in accordance with the "Law of the People's Republic of China on the Promotion of Small and Medium-sized Enterprises" and other relevant laws.

Article 2 　 Government agencies, public institutions, and large enterprises shall comply with these Regulations when making payments to small and medium-sized enterprises for goods, projects, and services procured from them.

Article 3 　According to these regulations, "small and medium-sized enterprises" refer to medium-sized, small-sized, and micro-sized enterprises established in accordance with the law within the territory of the People's Republic of China, as defined by the SME classification standards approved by the State Council. "Large enterprises," on the other hand, refer to enterprises that do not fall under the category of SMEs.

Small and medium-sized enterprises, as well as large enterprises, are categorized based on the type of enterprise scale defined at the time of contract establishment. When small and medium-sized enterprises enter into contracts with government agencies, public institutions, or large enterprises, they shall proactively inform the other party that they qualify as SMEs.

Article 4 　The department under the State Council responsible for the comprehensive management of SME promotion undertakes macro-guidance, overall coordination, and supervisory inspection of timely payments to SMEs by government agencies, public institutions, and large enterprises. Meanwhile, relevant departments under the State Council are responsible for related management tasks within their respective areas of responsibility.

Local people's governments at the county level and above are responsible for managing the timely payment of funds owed to small and medium-sized enterprises by government agencies, public institutions, and large enterprises within their administrative jurisdictions.

Article 5 　 Industry associations and chambers of commerce should, in accordance with laws, regulations, and their articles of association, strengthen industry self-discipline. They must prohibit large enterprises within the industry from leveraging their dominant positions to refuse or delay payments owed to small and medium-sized enterprises. The guidelines encourage them to fulfill their obligation of timely payment to SMEs, thereby safeguarding the legitimate rights and interests of small and medium-sized enterprises.

Article 6 　 Government agencies, public institutions, and large enterprises shall not require small and medium-sized enterprises to accept unreasonable payment terms, methods, conditions, or default liabilities. They are also prohibited from defaulting on payments owed to SMEs for goods, projects, or services.

Small and medium-sized enterprises shall operate in compliance with the law, maintain integrity and trustworthiness, and deliver qualified goods, projects, and services as stipulated in the contract.

Article 7 　Governmental organs and public institutions Procurement of goods, works, and services from small and medium-sized enterprises using fiscal funds shall be strictly carried out in accordance with the approved budget; no procurement activities may be conducted without a budget or beyond the approved budget limits.

Funds required for government-invested projects shall be ensured in accordance with relevant national regulations and may not be advanced by construction contractors.

Article 8 　Governmental organs and public institutions Payments for goods, works, and services procured from small and medium-sized enterprises shall be made within 30 days from the date of delivery of such goods, works, or services; if the contract specifies otherwise, the payment period shall not exceed 60 days.

Large enterprises procuring goods, projects, and services from SMEs shall reasonably agree on payment terms in accordance with industry standards and customary business practices, and ensure timely payment of funds.

If the contract stipulates settlement methods such as progress-based settlement or periodic settlement, the payment deadline shall commence from the date on which both parties confirm the settlement amount.

Article 9 　When government agencies, public institutions, and large enterprises agree with SMEs that payment for goods, projects, or services will be made upon successful inspection or acceptance, the payment deadline shall commence from the date of such successful inspection or acceptance.

The contracting parties shall specify a clear and reasonable inspection or acceptance period in the contract and complete the inspection or acceptance within such period. If government agencies, public institutions, and large enterprises delay inspection or acceptance, the payment period shall commence from the date when the agreed inspection or acceptance deadline expires.

Article 10 　Government agencies, public institutions, and large enterprises When settling payments to small and medium-sized enterprises using non-cash payment methods such as commercial bills, clear and reasonable agreements must be specified in the contract. It is prohibited to force SMEs to accept non-cash payment methods like commercial bills, and it is also forbidden to use these methods as a disguised means to extend payment deadlines.

Article 11 　Government agencies, public institutions, and large state-owned enterprises It is prohibited to compulsorily require the audit results of the auditing authority as the basis for settlement, unless otherwise agreed upon in the contract or otherwise stipulated by laws or administrative regulations.

Article 12 　In addition to the bid bonds, performance bonds, construction quality bonds, and migrant worker wage bonds established in accordance with the law, No other deposits shall be collected. The proportion of margin collected shall comply with relevant national regulations.

Government agencies, public institutions, and large enterprises The margin shall not be restricted to cash. If small and medium-sized enterprises provide guarantees in the form of financial institution letters of guarantee, government agencies, public institutions, and large enterprises shall accept such forms of assurance.

Government agencies, public institutions, and large enterprises shall, in accordance with contractual agreements, promptly verify and settle the security deposits collected from SMEs upon expiration of the guarantee period.

Article 13 　Government agencies, public institutions, and large enterprises Payment to small and medium-sized enterprises shall not be refused or delayed on the grounds of changes in the legal representative or principal person in charge, failure to complete internal payment procedures, or, in the absence of contractual agreements, due to reasons such as awaiting approval for completion acceptance or final account auditing.

Article 14 　For financing secured by accounts receivable from small and medium-sized enterprises, government agencies, public institutions, and large enterprises shall confirm the creditor-debtor relationship within 30 days from the date when the SME submits the request for debt confirmation, thereby supporting SMEs in obtaining financing.

Article 15 　 For delays in payment of funds owed to small and medium-sized enterprises by government agencies, public institutions, and large enterprises, overdue interest shall be paid. If the parties have agreed on the interest rate for the overdue period, such agreed rate shall not be lower than the 1-year Loan Market Quote Rate prevailing at the time of contract conclusion. In cases where no agreement has been reached, overdue interest shall be calculated at a daily rate of 0.05%.

Article 16 　Government agencies and public institutions shall… Each year, by March 31, the number and amount of contracts involving overdue payments to small and medium-sized enterprises from the previous year shall be publicly disclosed through accessible channels such as websites and newspapers.

Large enterprises shall include information such as the number and amount of contracts involving overdue payments to SMEs in their annual reports, and publicly disclose this information through the enterprise credit information disclosure system.

Article 17 　The department responsible for comprehensive management of SME promotion under provincial-level or higher people's governments shall establish convenient and efficient channels to accept complaints regarding the refusal or delayed payment of funds owed to SMEs by government agencies, public institutions, and large enterprises.

The complaint-handling department shall, in accordance with the principles of "jurisdictional management, hierarchical responsibility, and accountability by the responsible authority," promptly forward complaints to the relevant departments or local people's governments for handling. The relevant departments and local people's governments shall address these complaints in a timely manner according to law and inform the complainant of the outcome, while also providing feedback to the complaint-handling department.

Government agencies, public institutions, and large enterprises Failure to fulfill the obligation of timely payment to SMEs, especially in cases of serious violations, may result in the complaint-handling department legally and regulatively incorporating the entity's untrustworthy information into the National Credit Information Sharing Platform. Relevant enterprise-related information will also be publicly disclosed to society through the Enterprise Credit Information Publicity System, and measures for punishing dishonesty will be implemented in accordance with the law.

Article 18 　The complained-about government agencies, public institutions, large enterprises, and their staff. Complainants shall not be intimidated or subjected to retaliation in any form.

Article 19 　For government agencies and public institutions that refuse or delay payment of funds owed to small and medium-sized enterprises, necessary restrictive measures shall be implemented in areas such as official consumption, office space allocation, and budgetary arrangements.

Article 20 　The auditing authority shall conduct audit supervision, in accordance with the law, over the payment of funds owed to small and medium-sized enterprises by government agencies, public institutions, and large state-owned enterprises.

Article 21 　The people's governments at or above the provincial level shall establish an inspection and supervision system to oversee and ensure timely payment of funds owed to small and medium-sized enterprises.

Article 22 　When the state conducts assessments of the development environment and evaluations of the business climate for small and medium-sized enterprises in accordance with the law, it shall include the timely payment of funds owed to SMEs as part of the assessment and evaluation criteria.

Article 23 　The department under the State Council responsible for the comprehensive management of SME promotion work has established an enterprise size and type testing platform based on the SME classification standards approved by the State Council, providing self-assessment services for identifying the size and type of SMEs.

For those who have disputes regarding the size classification of small and medium-sized enterprises, they may apply to the department responsible for comprehensive management of SME promotion under the local people's government at or above the county level in the area where the party claiming the SME status resides.

Article 24 　The state encourages legal service institutions to provide legal services to small and medium-sized enterprises that are involved in payment disputes with government agencies, public institutions, and large enterprises.

News media should carry out public welfare publicity on laws, regulations, and policies related to the timely payment of funds owed to small and medium-sized enterprises, and strengthen public opinion supervision—within the bounds of the law—against government agencies, public institutions, and large enterprises that refuse or delay payments to SMEs.

Article 25 　Government agencies and public institutions that violate this regulation, If any of the following circumstances exist, the competent authority or supervisory department shall order rectification; if the entity refuses to make corrections, disciplinary actions shall be taken against the directly responsible principal and other directly liable personnel in accordance with the law.

(1) Failure to pay for goods, projects, or services provided by SMEs within the prescribed time limit;

(II) Delay in Inspection and Acceptance

(III) Forcing small and medium-sized enterprises to accept non-cash payment methods such as trade bills, or indirectly extending payment terms by utilizing these non-cash payment methods;

(IV) Requiring the audit results of the auditing authority to serve as the basis for settlement without any legal, administrative regulations, or contractual agreements.

(5) Illegally collecting security deposits, refusing to accept financial institution guarantees provided by SMEs, or failing to promptly verify and settle security deposits with SMEs.

(6) Refusing or delaying payment to SMEs on the grounds of changes in the legal representative or principal person in charge, failure to follow internal payment procedures, or, in cases where the contract does not specify otherwise, waiting for approval of completion acceptance or final settlement audits.

(7) Failure to publicly disclose information on overdue payments owed to SMEs as required.

(8) Intimidating or retaliating against complainants.

Article 26 　If government agencies or public institutions fall under any of the following circumstances, they shall be held accountable in accordance with laws, administrative regulations, and relevant state provisions:

(1) Procurement of goods, projects, and services from small and medium-sized enterprises using fiscal funds without adhering to the approved budget;

(II) The construction unit is required to finance the construction of government-invested projects.

Article 27 　Large enterprises that violate these regulations by failing to disclose overdue payment information for funds owed to SMEs in their annual corporate reports as required, or by concealing the true situation and engaging in fraudulent practices, shall be handled according to law by the market supervision and administration authorities.

State-owned large enterprises that, without contractual agreements or legal and administrative regulatory grounds, require the audit results from auditing authorities to serve as the basis for settlement shall be ordered by their competent authorities to make corrections. Those who refuse to comply shall have their directly responsible leaders and other directly accountable personnel disciplined in accordance with the law.

Article 28 　For payments made by group organizations that use fiscal funds, either partially or entirely, for the procurement of goods, projects, and services from small and medium-sized enterprises, the relevant provisions applicable to government agencies and public institutions under these Regulations shall apply by analogy.

Payments to small and medium-sized enterprises for goods, works, and services procured by the military shall be made in accordance with relevant military regulations.

Article 29 　This regulation shall come into effect as of September 1, 2020.