In a bid to accelerate the financial support to the real economy amid the improving Covid-19 situation in China, the China Banking and Insurance Regulatory Commission (CBIRC) issued a notice on supply chain finance on March 26, highlighting a full spectrum of 17 guidelines to financial institutions and anchor corporates in the supply chain.
“In view of the cash flow pressure faced by some enterprises in the upstream and downstream sectors of the industrial chain since the resumption of work and production, the notice puts forward specific measures to guide banking and insurance institutions to enhance financial support and services, facilitate the capital flow of the industrial chain, and enhance the overall effect of co-ordinated resumption of work and production across the industrial chain,” the CBIRC states.
According to the notice, entitled “Strengthening Financial Services for the Co-ordinated Resumption of Work and Production across the Industrial Chain”, banks are advised to increase working capital facilities to anchor corporates through bonds and loans, receivable finance to suppliers, and inventory and pre-delivery finance to distributors. To corporates with good credit quality, banks are advised to lower the deposit requirement when issuing banks acceptance drafts and waive the processing fees.
As the largest exporting country in the world, China plays a critical role in the global supply chain. In the first two months of 2020, the exports dropped 15.9% year-on-year because of Covid-19. To boost exports, the CBIRC notice requires banks to provide additional trade facilities and set up a green channel to quality export companies.
In March, the Bank of Communications launched an online trade finance platform that allows its customers to obtain trade finance facilities in an entirely paperless way. The whole process takes only 17 minutes from application to drawdown.
Under the new guidelines, credit insurance providers are encouraged to expand coverage of short-term credit insurance products by offering lower fees. In addition, insurance companies are encouraged to provide guarantees as a credit enhancement to anchor corporates and upstream or downstream small and medium-sized enterprises.
In a similar vein, Sinosure, the state-owned export credit insurance company, in early March announced 23 measures, including increasing short-term insurance policy financing to trade companies affected by Covid-19 in China.
And with corporates pushing their digitalization agenda ahead because of the coronavirus outbreak, transaction banks have been actively launching online supply chain finance platforms.
The notice’s guidelines also encourage financial institutions to exchange real-time data with governments and anchor customers, and co-establish risk management and supply chain finance models. In addition, banks are encouraged to explore innovative supply chain finance solutions that serve large anchor customers like e-commerce and logistics companies.
Ouyeel, a leading Chinese business-to-business commodities e-commerce company, announced that it will work with China Merchants Bank to launch an online supply chain finance platform in April for resumption of work and production. According to Ouyeel, suppliers of Baosteel, a dominant state-owned enterprise in the iron and steel sector, are able to apply for a supply chain finance facility at a 3.7% financing cost, which is much lower than the average loan interest common in China.
On March 30, the People's Bank of China cut the seven-day reverse repo rate from 2.4% to 2.2% and injected 50 billion yuan of liquidity into the interbank market. It is expected that the loan prime rates, which were 4.05% for one year and 4.75% for five years in March, will be adjusted accordingly in April.
China is emerging from a rigorous lockdown with the reopening of businesses and life slowly returning to normal. The Purchasing Managers’ Index for manufacturing, released by the National Bureau of Statistics on March 30, returned to 52 in March, up from 35.7 in February 2020.
