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China's banks want regulation of trade finance

China’s banks want regulation of trade finance

(05 March 2013 – China) China’s banks are demanding tougher regulation on non-financial institutions, asking the government to draft rules in order to head off higher risk. Bank of China Ltd (BOC), one of China’s big four banks, said banks are facing rising competition from e-commerce and logistics companies in providing trade financing services. Risks, however, are also piling up.

Trade finance refers to financing trading transactions, including trade credit and insurance guarantees. Around 80 percent to 90 percent of world trade relies on these services, mostly of a short-term nature.

Shanghai Pudong Development Bank said the trade finance business is of great significance to banks as it creates low-cost liabilities and extends other revenue opportunities.

"The development target and risk management standards of non-financing companies are quite different from those of banks. Therefore regulators should enhance supervision of such trade financing activities," said Chen Siqing, a BOC Vice President.

Among these non-financial institutions are e-commerce companies that are now into the financing business such as Alibaba Group Holding Ltd, China's biggest e-commerce company.

Alibaba has provided nearly US$4.8 billion (A$4.7 billion) in credit to 130,000 trading enterprises since it launched its lending business in 2010.

Chen said these non-financial companies are accelerating their financial services based on their information and technological advantages, and strong electronic trading or logistics distribution platforms.
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