Known as commercial acceptance bills, the IOUs have topped $200 billion, up more than one-third from 2018. Aside from waiting for payment, companies with IOUs can ask for interest on top of the amount due and also sell the notes to investors.
CEO Xu Jiang of the Shenzhen-based architecture and planning firm Zhubo Design said the practice started two years ago, and now many companies are using these notes more often than paying with cash, he told the NYT.
Zhubo and other big companies can survive the cash shortage, but for smaller companies, it can be impossible to wait months for payment, Xu told the news outlet.
The increasing use of IOUs has regulators concerned. So far, 281 firms went bankrupt this year, compared to 200 over the same period last year.
The Shanghai government-founded developer Greenland Holding had $550 million IOUs out to suppliers by the end of last year, 10 times the amount it had outstanding in 2017. State-owned export company China Resources had $2.7 billion notes at the end of last year, double what it had in 2017.
China’s Central Bank said in June that there won’t be any more bank takeovers after the government’s intervention with Baoshang Bank, an Inner Mongolia-based bank. The government said the takeover was due to improper and illegal use of bank funds by Tomorrow Holdings, which owns 89 percent of Baoshang’s stock. A credit crisis ensued, but The People’s Bank of China said it would guarantee all personal accounts and inter-bank debts of less than 50 million yuan. It also said it plans to use different tools to stabilize money markets and increase liquidity.