The city of Shenzhen, which has developed from a market town into today’s bustling metropolis linking Hong Kong to China’s mainland, was the venue for the Fifth China SCF Innovation Summit. This year’s event at the Futian Shangri-La hotel attracted more than 700 supply chain finance practitioners, with representatives from SCF service providers, business-to-business (B2B) platforms, fintechs, banks and non-bank financial institutions.
In addition to the keynote sessions and speeches, delegates also had access to the Wanlian Institute of Supply Chain Finance’s just-published 2018 edition of its research report China Supply Chain Innovation and Application White Paper, which was issued at the Summit by Cai Yujiang, the Institute’s founder and CEO.
Looking back on 2017, the year was an eventful one in China for supply chain innovation. The Chinese government released its first supply chain policy paper, and in October the General Office of the State Council issued the Guiding Opinions on Actively Promoting Innovation and Application of Supply Chains and proposed “proactively and steadily developing supply chain finance”.
Emerging technologies, particularly blockchain, have come to the fore as a major driver of more secure and trusted SCF models and initiatives, while banks’ are putting greater reliance on fintech for innovating new services. Smart supply chains and intelligent SCF innovation were reviewed at the event, with a focus on the contribution of government, business models and industrial organisations and how China ranks with the rest of the world.
The tone at this year’s Summit was realistic. A keynote speech entitled ‘Intelligent Supply Chain Finance: The Emergence of Technology Empowerment’ by Professor Song Hua, from the Business School of the Renmin University of China, acknowledged that “the realisation of smart SCF still has a long way to go” and faces several challenges. They include the fact that SCF facilitators and those providing the funding for SCF innovation are two different groups.
Li Renjie, an executive partner of tech group Foxconn’s HCM Capital unit identified four problems hampering the development of SCF. “Customers can’t obtain timely and effective funding, and the opaque supply chain leads to high financing costs,” he said. “The platform also suffers from the conflict of interest caused by asset underwriting and capital introduction. The lack of risk control data means a decline in the participation of capital-related parties.
“Blockchain technology can solve some of SCF’s problems – it makes data credible and transparent and the transaction settlement more efficient, thus optimising financing.”
A more upbeat tone was struck in a speech by Yu Meng, president of the Aviation Industry Trust, who highlighted four main drivers that have accelerated the development of ‘smart’ SCF over the past couple of years: China’s huge market size, pro-SCF policies, corporates’ strong desire to leverage SCF, and emerging new technologies coupled with the rapid development of Big Data.
Smarter supply chains
Smart supply chains are very much in focus at supply chain services and software developer Li & Fung Development (China) Co. The group is midway through its three-year plan for 2017-19, which focuses improving the speed, innovation and digitalisation of the supply chains of 15,000 companies around the world.
Li & Fung director Zhao Lijuan said: “The digital platform is the core of our new business model. It fundamentally changes the way companies operate by integrating the ecosystem of employees, businesses, partners, processes and equipment. The important thing is that digital platforms are also the foundation for creating new value.”
Will banks play a leading role in the development of both the financial and industrial supply chains of the future? Zhang Peng of China Merchants Bank believes that they are a force for empowerment in two ways. “The first is in empowering the core companies and core enterprises that integrate the ecology of the industrial chain to help build an ecosystem.
“The second is in opening up the capital market. The middle layer is very crucial. It connects the industrial ecosystem and the underlying financial ecosystem platform, and the online supply chain system reflects the integration of financial and industrial ecosystems.”
China’s policy of steady financial liberalisation is opening up new international financial opportunities and challenges, as is the country’s ambitious ‘one belt, one road’ initiative launched back in 2013, so financial services innovation under cross-border supply chains was one of this year’s hot topics, addressed in a speech by Liu Tong, former vice-president of online retailer Dunhuang.com.
In add to cross-border trade trends and supply chain service innovation, the presentation considered cross-border e-commerce industry upgrades and intelligence, logistics, overseas warehouses and free trade areas, against a changing global e-commerce industry landscape. Cross-border supply chain services present a variety of challenges that include bogus transactions, tax fraud and ensuring compliance with local regulations and legislation.
Chair of the Supply Chain Finance Community and professor of SCF at Windesheim University of Applied Sciences, Michiel Steeman, gave a keynote address on SCF’s international development. He reported that reverse factoring still accounts for around half of SCF transactions in Europe, with dynamic discounting in second place followed by collaborative logistics management and inventory financing.
While the majority of European SCF platforms are still those of the banks, alternatives from technology companies and non-bank institutions are proliferating. As more European banks turn their attention to SCF services and are helped by their financial strength, opportunities are opening up for technology providers.