denotes premium content | Jan 6 2009 Trade & Forfaiting Review magazine archive
Volume 7 Issue 2
Editor's foreword
If the 20th century was the American century, the 21st century, it is believed, will be dominated by China.
Indeed, the numbers tell quite a story: 8.2% GDP growth in the first half of this year, US$33.35bn of foreign direct investment in the first seven months of the year, a US$8.9bn trade surplus in the first eight months, a current US$103bn trade surplus with the US, and US$298bn in foreign-exchange reserves. China is now the world’s second largest economy, measured in purchasing-power parity. The country sits firmly in the centre of a broader Asian resurgence after the 1997 financial crisis. Just five years on, by 2002, East Asia generated 24% of global GDP at market prices and a third measured in purchasing-power parity.
No surprise then that China is regularly cited by trade financiers as one of today’s most exciting markets. Its potential is huge; that is without question. There are growth opportunities in forfaiting and factoring, for example. Since forfaiting was introduced to China about three years ago, most local banks have embraced it and some big-name foreign banks have moved in to capture the bulk of the burgeoning business. By some estimates, forfaiting volumes have increased from approximately US$30m in 2000 to possibly as much as US$800m in 2003. Factoring volumes have also risen, from less than US$100m annually to around US$2.2bn in 2002.
With its strong production base for exports and the concentrated presence of mulitinationals (both thanks to its cheap labour) and also now the presence of Sinosure, China presents tempting opportunities for export finance.
But the challenges are many. The legal system is unclear and banking laws are incomplete. Extreme caution is needed even on the simplest lending transactions. Corruption remains a problem. Local banks have liquidity but not the expertise.
However, with World Trade Organisation (WTO) accession, it is hoped, trade volumes will increase, regulations will relax and customers will become more sophisticated. Post-WTO, Chinese exporters will be forced to become more globally minded, and this will change their financing requirements.
There is a general feeling that while China isn’t yet a place where foreign banks can make a lot of money, they simply can’t afford to not be there. Some carry out trade-finance activities in China, but keep a low profile, and many have been hesitant to invest heavily there. That is perhaps the best approach for now: by all means, go east, but tread carefully.
Courtney Fingar is editor of Trade & Forfaiting Review.
Features
To pay or not to pay
For all the various efforts over the years to reform and clarify laws relating to LCs, discrepancies and payment refusals remain nagging problems. Though they probably always will be, at least to some degree, recent developments in both the courts and industry should help streamline the payment process a bit. Erika Morphy reports.
Crouching tigers, raging dragon
One can’t help but be impressed by China’s remarkable economic growth, which is roaring on ahead, leaving the rest of Asia, and much of the world, in its tracks. But there is reason for caution and concern, and a need to remember the lessons of the 1997 Asian crisis, which humbled the overhyped and overheated ‘tiger’ economies. Courtney Fingar reports.
Ready to perform?
China is considered, in most banking circles, a country of great promise, but also one of great disappointment. There are many foreign banks there, but few making money. This is certainly true with regards to forfaiting and factoring, as Holger Kebernik, director of China Trade Solutions Ltd, writes. Here, he explains the development of these industries in China over the past few years, as well as what he thinks a private company can do to promote it.
All eyes east
The future of export finance just might lie in Asia, and in particular China, where rapid development and an increase in export activity is keeping foreign banks busy while export credit agencies struggle to remain relevant. Courtney Fingar reports.
Insurance in unsure territory
A spate of terrorist attacks in Asia has reinforced the perception that it is a risky place to do business. But there is growing awareness and understanding of political threats, and a range of insurance products that can help mitigate the risks … if you can find them. Ryan Short reports.
Making working capital work better
Some new and innovative structures are offering the opportunity for companies that use commodities to monetise working inventories while retaining the right to re-purchase identical goods. Haseeb Haroon, head of structured inventory products in ABN Amro’s global commodity-finance group in Amsterdam, explains a few of these structures.
Is security always necessary?
The ability to take security will always be a central consideration for lenders in any structured transaction. This is especially the case in trade-finance deals, in which the lack of involvement of a creditworthy borrower often gives rise to the perception that security ought to be taken over all available assets at all stages of the transaction. Geoffrey Wynne, partner, and Matthew Cox, solicitor, of Denton Wilde Sapte explain the legal nuances of taking security on structured-trade-finance transactions.
Regulars
Company profile: Credit where credit is due
While other credit insurers opt for consolidation to achieve cost savings and increase underwriting capacity, Zurich’s credit-insurance business has instead stuck to a centralised business model, based on selective underwriting. Thomas Schaedle, head of international business, speaks to Courtney Fingar about this strategy, and comments on broader industry developments.
Personal profile: Supermarkets, emerging markets and everything in between
From university drop-out to supermarket shelf stacker to managing director, David Sullivan has worked his way up the ranks and around the world. Now, after settling in Hong Kong and working the past few years at Noble Trade Finance, he’s soon to go it alone with his own trade-finance company. Courtney Fingar finds out about what’s in store for him next.
Arrangers of trade-finance loans by region
The below amounts are calculated on an apportionment basis and deals are eligible for league-table credit/inclusion when a loan agreement has been signed and fees (where applicable) are paid.
For purposes of clarification, Eastern European borrowers include Russia. Amounts in $US.
LTP Trade Finance Index
Credit margins contract in Brazil and Turkey
Indicative forfaiting rates
The analysis from Standard Bank London:
