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Chinese Banks Pained By Shifting Position In Global Trade Finance


China's corporate banking sector is getting hit with a bit of a setback as more companies look outside China for supply chain financing.

New research from East and Partners, released this week, discovered that CFOs the world over are changing their supply  chain financing practices as they plan to reduce the number of banks from which they access this type of financing. Currently, companies surveyed use an average of 14 supply chain financing banks, researchers said.

But while the trend is occurring across the globe, East and Partners said it is no more acute than it is in China. There, one-third of companies said they plan to shift their supply chain financing business to non-Chinese banks. Today, Chinese FIs provide nearly three-quarters of all supply chain financing needs for Chinese companies. That's about to change, though, according to the report, which surveyed 736 corporate treasurers and CFOs at companies across eight countries.

There may also be a shift ahead in terms of the type of financing Chinese businesses seek for their supply chain and global trade needs. Less than 5 percent of the businesses surveyed told researchers they use receivables financing as their supply chain financing vehicle, but 69 percent said they're likely to increase their use of receivables financing moving  forward.

Until then, though, traditional trade finance seems to be the way to go, with more than a third of firms surveyed saying they use this product today.

China also landed at the top when it comes to supplier payment terms, with Chinese firms taking an average of 110 days to pay their suppliers – nearly double the average of 63 days researchers found, and far above Germany, which saw the quickest supplier payment times at 49 days.

With suppliers forced to wait longer to get paid, demand for supply chain financing among Chinese companies and their vendors could increase, with suppliers seeking working capital while they wait to see their invoices settled. According to East and Partners’ analysis, Chinese banks must be vigilant about that need as their corporate clients switch to foreign financial service providers.

Compounding matters, separate analysis from SWIFT revealed that the Chinese yuan has slipped yet again in the global trade finance rankings.

Last week reports said the yuan dropped to seventh place in the rankings of most-used currency in global trade.  Though the U.S. dollar holds 42.1 percent of global trade market share, the yuan now accounts for just 1.6 percent, behind the Swiss franc. Analysts said the value of the yuan in trade finance has gradually been declining since 2014 after hitting a peak of 9 percent of total global trade finance.

And for the first time in nearly three decades, Moody's Investors Service downgraded the nation's credit ratings last week, though turning the outlook to stable from negative. Moody's told reporters that the decision was based on an array of factors, including a pessimistic forecast for the nation that predicts economic growth for the country to decline to 5 percent by 2020.

"When growth slows, then that points toward slower revenue growth, probably slower profitability and somewhat weaker debt servicing capacity," said Moody's sovereign rating group Senior Vice President Marie Diron in an interview with CNBC.

Moody's analysts also predict government debt to increase towards 40 percent of total GDP by 2018, and as high as 45 percent by 2020, reports said.

China's position in the cross-border trade market can play a strategic role in the strength of its economy, though, with the government's heavy hand in the financial system and capital outflow levels enabling the nation to remain stable in the near-term, according to Moody's.

One way China has aimed to stunt that outflow has been to target cross-border trade invoice fraud. The latest data estimated $674 billion left China in 2015, with the International Institute of Finance warning that not all of that was from legitimate trade.

Interestingly, analysts said the downgrade could actually move borrowers onshore and increase the nation's loan exposure; though, according to East and Partners data, that may have no impact on companies turning away from Chinese banks when it comes to trade finance needs specifically.

How Moody's downgrade will actually impact China, though, isn't clear.

“I don't think it's going to be earth-shattering or shift investors‘ sentiment toward China,” said CIMB private banking economist Song Seng Wun in another interview with CNBC. “Everyone on the planet has flagged the risk of Chinese debt and the risk that is associated with the current policymakers’ strategy and attempt to deleverage.”



The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.

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