Despite global trade headwinds, blockchain technology is making its way into cross-border trade finance, which is set to benefit China’s small and medium-sized import and export companies.
In March, China’s State Administration of Foreign Exchange officially launched its cross-border trade finance blockchain platform. Since then, US$8.5 billion in receivable finance has been granted to 1,662 corporates on the platform, of which 75% are SMEs, as of November 25. Over 160 banks have signed up to this platform.
“The real problems behind the financing difficulties facing SMEs are asymmetric information and lack of data sharing,” notes Xin Zhang, deputy administrator of SAFE. “Blockchain is the right weapon to tackle these problems.”
Leveraging People’s Bank of China’s blockchain technology, SAFE’s blockchain platform shares various trade information including payment, bank acceptance drafts, financing application, and drawdown. With blockchain technology, small and medium-sized import and export companies are able to obtain trade finance with a lower cost and higher efficiency.
Chongqing Hongxi Technology, a medium-sized laptop manufacturer, has shortened its financing application duration from two days to 15 minutes thanks to the blockchain platform. Currently, Chongqing Hongxi Technology only needs to upload its cross-border trade information in digital formats to banks for reconciliation through the platform, instead of on-site manual reconciliation on each paper document. The company has so far received over US$9 million in trade finance through the platform.
From the banks’ perspective, the blockchain platform lowers the risk for banks on the platform, as all trade information uploaded has to be true and certified by SAFE or other authorities. On the other hand, all banks on the platform share every trade finance transaction. As such, banks are able to identify and block trade finance applications whose underlying trade documents have already been used in other trade finance applications.
China has been at the forefront in applying blockchain in the financial services industry. On top of the government-led blockchain platform, a Greater Bay Area trade finance blockchain platform was jointly launched in Shenzhen in September 2018 by Shenzhen Fintech Research Institute, Bank of China, China Construction Bank, China Merchants Bank, Ping An Bank, Standard Chartered and BYD.
On this platform, BYD’s suppliers are able to obtain banking facilities more easily from local banks. According to informed sources, this pilot program also allows trade assets including receivables, letter of credits and forfaiting to be sold to offshore markets.
Shenzhen was also the first pilot city in adopting blockchain invoices. On August 10 2018, the first blockchain-based invoice was issued by a Shenzhen-based restaurant. Via WeChat, restaurant customers are able to access their digital invoice and receive the reimbursement from corporate treasurers. Corporate treasurers and the tax authority in Shenzhen are also able to track the transactions online. The blockchain technology was backed by Tencent and Kingdee.