Trade services in China

A wide range of import and export services is offered by banks operating in mainland China. The main import services offered include documentary credit issuing and the provision of shipping guarantees and clean import loans.

An extensive range of export services includes documentary collection, documentary credit confirmation and negotiation, as well as pre- and post-shipment finance. Export credit- backed facilities can be arranged through the various national export credit agencies to support the importation of capital goods into mainland China.

Import Services

DC issuing
A documentary credit (DC), also known as a letter of credit (LC), is a written undertaking by a bank, issued on the instructions of the buyer in favour of the seller, to effect payment under stated conditions.

A DC gives the seller the comfort of knowing that he can look to the importer's bank for payment and that the buyer will only be able to gain access to the goods (via the necessary documents) once they have complied with all the terms of the DC. The buyer has the comfort of knowing that he will not be required to pay for the goods before he has control of the documents.

Shipping guarantee
Sometimes goods arrive before the documents. In such cases 'shipping guarantees' can be used. A shipping guarantee is an application from the bank to authorize the release of goods by a shipping company against the bank's undertaking to deliver the original bill of lading in future. It is usually applicable under import DC transactions and allows prompt clearance of goods ahead of the arrival of documents. However, when taking the goods, protection against discrepant documents is lost.

Clean import loans
A working capital facility can be made available to pay for the goods imported under the DC. The finance will often be required to enable the buyer to turn the goods into manufactured items for onward sale. The advance will usually be made available for the manufacturing period on sight of original invoices and shipping documents only.

Export services

Documentary collection
Documentary Collection is a dedicated export bill collection service offered by banks to follow up on bill payments as agents of the exporter.

Documents are received by the local branch of the exporter's bank. These documents are then forwarded to the collecting bank (for non-DC transactions) or DC-issuing bank (for DC transactions) together with a collection order requesting payment.

DC confirmation
Documentary credit confirmation is a service offered by foreign banks to add an undertaking to pay in the event that the issuing bank is unable to, even though the documents submitted by the exporter are fully compliant.

An exporter's main concern is with receiving payment and it may be difficult to retrieve goods that have been shipped to the importer's country in the event that payment is not forthcoming and so an exporter may choose to seek the reassurance of DC confirmation in situations where the issuing bank is not well known, or in financial difficulties itself, or if the administration of the importer's country presents risks “ real or perceived “ with which the exporter is uncomfortable.

DC negotiation
Documentary credit negotiation is a service offered by banks which involves checking and making a payment advance against the documents presented by the exporter, upon shipment of goods under an export documentary credit.

The bank will check to ensure that the exporter's documents are in full compliance with the terms and conditions of the DC, and where possible, work with the exporter to make appropriate amendments to rectify any discrepancies. However, some discrepancies such as expired DCs or late shipment are not rectifiable.

Any discrepancy whatsoever could render the exporter's export DC inoperative as an undertaking of payment from the issuing bank.

Pre-shipment finance
Pre-shipment finance provided by a bank is generally termed 'loans against exports'. Loans must be supported by original irrevocable DCs. Facilities may also allow advances to be made against confirmed orders by specified reputable buyers of international standing. Types of pre-shipment finance offered include packing credits, manufacturing advances and red clause credits.

Packing credits provide an exporter with finance after goods have been manufactured but before they are shipped. This helps to smooth the exporter's cash flow while the goods are being packed and waiting for shipment. The advance is repaid when the goods are shipped, if the documents were negotiated with the exporter's bank.

Manufacturing advances are provided to exporters to meet manufacturing costs such as the purchase of raw materials.

A red clause credit is a DC containing a clause from the issuing bank that authorises the advising bank to grant an advance to the exporter before documents are presented. Facilities are not required for this type of pre- shipment finance as the advising bank is relying on the issuing bank for reimbursement rather than the customer.

Post-shipment finance
Post-shipment finance occurs when an exporter asks its bank to advance funds against a shipment that has already been made. The exporter eases their cash flow by obtaining funds for their shipment without having to wait for the importer to pay.