The spotlight was on supply chain finance for the first time at a recent conference for supply chain management professionals in China, reflecting the phenomenal growth of this tool over the last few years.

The International Conference on Operations and Supply Chain Management and Forum of Strategic Supply Chain Thought Leaders took place in the eastern coastal city of Qingdao on 13 July, bringing together academics and SCF professionals from companies and financial institutions. It was jointly sponsored by Haier Digital Technology, the Chinese Association of Supply Chain Operations and Management (ASCOM), and the China Europe International Business School.

Michiel Steeman (pictured, right), chairman of the Supply Chain Finance Community, was making his third trip to China this year when he gave the keynote speech – in itself, he said, an indication perhaps that the SCF market in China is set to explode.

Supply chain finance is a key part of the Bank of Shanghai’s new three-year plan, said deputy governor Huang Tao. The commercial bank was recently ranked 76th in the world according to the British Banker listing of the top 1000 banks by tier 1 capital, so a considerable amount of financial muscle lies ready to develop SCF in China. The bank aims to help SMEs obtain more financial support and will be offering innovative products and services. At the same time, Huang said, Santander Bank – an important shareholder in Bank of Shanghai – is a leading player in supply chain finance. “There is reason to believe that Bank of Shanghai will make breakthroughs in the development of supply chain finance,” he said.

LINO is China’s first independent third-party Fintech company. At the Supply Chain Finance Awards held in Amsterdam in 2017, Qingdao University Hospital’s SCF project – which was implemented by LINO – received a ‘Highly commended’ citation. LINO chairman Zhou Binsaid that the company is actively developing four important supply chain finance projects with Bank of Shanghai and is seeking to launch them in the second half of 2018.

Exciting innovations

Securitisation of accounts receivable in China has grown substantially in 2018, but is still a negligible proportion of China’s huge accounts receivable totals, said Chen Daming, head of the investment banking department of CICC International Investment Co. “In the field of supply chain finance, we are cooperating with Chinese financial institutions and technology companies, through product innovation and technological innovation as well as meeting regulatory requirements, to provide liquidity support to more and more enterprises,” he said.

SCF Community chairman Michiel Steeman commented: “Although China’s supply chain finance was developing late, every time I come to China, I find exciting innovations. China is a huge market for supply chain finance. We are full of expectations for China.” The Netherlands and China are far apart, he said, “but in the Internet age, we believe that supply chain finance has brought us closer. The development of SCF is an important support for economic globalisation and sustainability. We are willing to help China in this field to make progress.”

While alternative financing is an important source of funding for supply chain finance in the west, China has yet to open up in this field. The participation of insurance companies will be an important part of making that happen, however, said Zhu Lihua, head of sales at the Chinese joint venture partnered by Eurer Hermes, the world’s largest credit insurer. She said that the firm has established a new digital transformation group – called the Sustainable Productivity Improvement and Value Creation Team – dedicated to reshaping the trade finance sector. “This provides the best way to manage credit risk for corporate and supply chain finance platforms and B2B markets,” she said.

Supply chain finance is, to some extent, a product of the coming together of supply chain management and trade finance. But while China’s current innovations in supply chain finance are numerous, there is still a big volume gap between it and trade finance, said Yang Hongxing, head of supply chain finance at Haier, the first organisation to implement online supply chain finance projects in China. “Continuous digital supply chain finance requires joint efforts and innovation in all aspects,” he said.

Professor Song Hua (pictured, right), a supply chain finance expert at the Business School of Renmin University of China, pointed out, digital supply chain finance’s breakthrough in China “enables banks to cross the digital gap and provide reverse factoring to a large number of suppliers in China.” It is particularly timely and strategic given the current trade war and China’s monetary deflation: it is an important measure for core enterprises and supply chains to maintain liquidity, he said.  “Digital reverse factoring in China’s banking industry still lacks support,” he added. “Traditional trade finance is too burdened by legacy systems for the digital age. It is very exciting, therefore, to make progress in cooperation between more and more financial institutions and technology companies.”