Chapter 2.9: Import and Export Financing in China

Export “Import Bank of China

China's import and export financing system

After more than two decades of reform and open -door policy, a complete trade system and finance system have basically taken shape. The two systems have been integrated into a reciprocal cycle “ the trade system has expanded China's foreign trade, and the continuous increase of foreign trade in return has spurred the completion of the country's import and export finance system.

The major players of China's import and export financing

The major financial players in import and export finance comprise two segments in China: banking institutions and insurance institutions.

Banking institutions
In China, banks can devise various financial vehicles to provide many kinds of trade financing services to firms that meet their qualification standards. The major players in the banking industry comprise many banks with different functions. There are three policy banks, four solely state-owned banks, 10 small and mid-sized shareholding commercial banks, 100 small and mid- sized shareholding city commercial banks, and 191 foreign financial institutions. All of these are under the auspices of the central bank “ People's Bank of China. More specifically :

• The Export “Import Bank of China (Eximbank) is the only policy-oriented bank;

• Bank of China, Construction Bank of China and Agriculture Bank of China are solely state-owned;

• Bank of Communication, Everbright Bank, CITIC Enterprise Bank, Huaxia Bank, Minsheng Bank, Merchant Bank, Shenzhen Development Bank, Guangdong Development Bank, Shanghai Pudong Development Bank and Fujian Xingye Bank are shareholding commercial banks.

Insurance institutions
The major Chinese insurance institutions related to foreign trade are Export Credit Insurance Company of China and People's Insurance Company of China.

Financing tools in import and export

Banking services
Among the various foreign trade financing services available, the export credit funded by the government is provided by Eximbank, whereas general commercial loans are provided by commercial banks. Their businesses cover:

• export seller's credit, export buyer's credit, forfeiting, factoring, discounting, project financing, syndicated loans and offshore construction loans;

• issuance, acceptance, negotiation and confirmation of letters of credit, bank guarantees , export lending, packing credit, import lending , delivery guarantee, import credit line service and entrusted collection.

In addition, the Eximbank also offers countermeasures against foreign exchange exposure, which include the forward contracts and other derivatives like currency and rate options, hedging, swapping, etc.

Insurance services
The Export Credit Insurance Company of China and People's Insurance Company of China provide insurance coverage over the following:

• short- term export credit;

• long and mid-term export credit;

• political risk for Chinese overseas investment;

• political risk for foreign investment in China;

• import and export cargo transportation;

• seaborne vessels;

• others.

^[*] This chapter was originally written in Chinese and was translated by Liu Baocheng, Professor, University of International Business and Economics.