Trade Finance in China

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Trade Finance in China

• Jun CHENG
• Managing Director
• Global Trade Services Dept.
• Bank of China

BAFT, 2nd Annual Asian Bank-to-Bank Forum 9th
March 2007, Singapore
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Content

• Development of Trade Finance Business in China
• Letter of Credit Business in China and UCP600

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Development of Trade Finance Business in China
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Development of Trade Finance Business in China

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Development of Trade Finance Business in China

• Large room for further development
• Many SMEs are still thirsty for funds and more
  comprehensive trade services.
• Chinese banks are changing their business
  strategy expanding trade finance
  business

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Development of Trade Finance Business in China

• Customers requests
• Funding without tying up too much collateral
• Mitigate various risks (credit, political,
  exchange rate, interest rate, etc.)
• Manage A/R and A/P
• Window dress financial reports

• Chinese banks solutions
• Credit investigation
• Finance under ECA cover
• Factoring
• Forfaiting
• Risk participation
• Currency swap
• L/C opening via internet
• Reverse factoring

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Development of Trade Finance Business in China

• The shift from single product solution to
  supply chain finance solution
• Tailor-made product package
• Looking after the whole supply chain

Chinese banks are seeking to join hands with
foreign banks, insurance companies and logistics
companies, etc.
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Development of Trade Finance Business in China

• Major trade finance banks in China are in
  the process of centralizing their L/C,
  Documentary collection and L/G business by
  setting up operation centers
• to enhance efficiency and professionalism
• to reduce cost and operation risk

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Development of Trade Finance Business in China

• Challenges to Chinese banks
• The product menu is not rampant enough
• Trade finance staff are lack of expertise and
  need more training
• SMEs demand has not yet been well served
• Sophisticated commodity finance arrangements

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L/C Business in China and UCP600

• The using of L/C as a means of international
  trade settlement is in decline
• Today L/C accounts for about 20 of the total
  foreign trade volume in China
• The L/C business is still very profitable in
  China
• The absolute volume of L/C transaction has
  been increasing over the past 10 years. For the
  year of 2006 the figure is USD300billion

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L/C Business in China and UCP600

• Contribution of Chinese banks to the revision of
  UCP
• UCP 600 is more in line with todays market
  environment and industry practice
• Preparing for the advent of UCP600 era
• --adjusting operation system
• --revising business procedure
• --reviewing all contracts and other
  documents
• --training staff and customers

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• Thank you