China's economy had a difficult 2018，encountering downward pressure on the domestic front coupled with a deteriorating international environment amid Sino-US trade friction. Challenges have continued into 2019 but one offsetting factor has been innovation in trade finance.

In 2018 there was a landmark innovation with the introduction of standardized electronic letters of payment and "Yunxin" is a key product based on this innovation. Launched by SCC Finance，a cloud-based financial information service platform in China，this app combines blockchain technology and supply chain finance. The app allows the redistribution and circulation of credit of key enterprises within the supply chain.

In the app system，blockchain technology guarantees the rights of key enterprises and electronically ensures the authenticity of debt information. On this basis，the credit standing of key enterprises can be determined，sub-divided，and tracked with the information stored using cloud technology. Ultimately，this can be used to support financing. This kind of system has shifted the mode of supply chain finance from the traditional "N +1" to a multi-level "N+N" framework. In this way，innovation especially benefits small- and micro-sized businesses，which are at the bottom of the supply chain，and often find financing difficult to obtain as well as costly.

The commercial blockchain apps，launched in 2018 and early 2019，work on the same underlying logic of "Yunxin." These apps include "Jiandanhui" by TCL Corp，Wechain co-produced by Tencent Holdings and Netease Inc，"Shuangliantong" by Ant Financial as well as the bank provided Supply-chain Accounts Receivable Service and the Accounts Receivable Finance Service Via Blockchain Set.

In addition to financial institutions and participants in the real economy，information platforms such as these have attracted the attention of regulators. A number of official and semi-official platforms were put into operation in 2018，among them the Digital Bill Trading Platform launched by the central bank and the Guangdong，Hong Kong and Macao Dawan District Trade Finance Blockchain Platform. The China Bank Association launched the China Trade Finance Interbank Trading Blockchain Platform and the Hong Kong Monetary Authority unveiled its Blockchain Trade Finance Platform. These initiatives have additional significance because they help protect financial security by establishing a financial communication system independent of any foreign institution.

Cross-border e-commerce finance and IT-based agricultural supply chain financing are seeing new opportunities. In the field of trade and finance there is Blue Ocean，a cross-border e-commerce platform of the Customs Administration. Total retail imports and exports through the cross-border e-commerce platform amounted to US$134.7 billion in 2018，up 50% year on year. There was an increase of 67% in exports alone. The data reveal a great potential for cross-border e-commerce finance services that offer data risk management. Such services require limited investment，provide quick financing，and produce fast returns. Cross-border e-commerce platforms focusing on fast-moving consumer goods have an edge in this area，as these products enjoy a sufficiently large market，have a low industry concentration，and there is limited price volatility.

Another promising field is IT-based agricultural supply chain finance. In 2018 the Opinions of the Central Committee of the Communist Party of China and the State Council on the Strategy of Vitalizing Rural Areas was released and proposed developing supply chain finance for rural areas，farmers and agriculture. As an indication of the potential in this area，the receivables of listed agricultural companies in China hit 3.3 trillion yuan in the second quarter of 2018.

Alibaba has already discovered the potential and responded to the opportunity. In 2018 it announced an investment of 4.5 billion yuan in "Huitongda," a rural e-commerce platform. Its online rural supply chain finance service "Huitongdai" has also been made available.

Last year a number of Chinese companies gained approval to issue asset-backed securities that could be used for supply chain funding. These included smartphone and mobile apps maker Xiaomi，e-commerce powerhouse Jingdong，car-hailing leader Didi and Alibaba affiliate Ant Financial. They have all helped accelerate the growth of the asset-backed securities market.

Banks have also joined in. China Zheshang Bank officially issued China's first blockchain-based accounts receivable asset-backed notes in August via the Shanghai Clearing House. The initial issuance of "Zheshang Chain" asset-backed notes was also the first transaction of its kind on China's interbank market.  The following month another bank launched the "Jucai Chain" blockchain asset securitization platform which "blockchain-izes" the information of ABS programs and assets. Due diligence can be conducted via blockchain，based on electronic contracts. In this way，the authenticity of underlying assets in trade finance，as well as the validity of related disclosures，is guaranteed. ABS market participants can also constantly obtain reliable information on underlying assets.

Outlook for Fintech in China

Trade finance arose from the interaction between trade-related monetary activities and industrial development. On information technology-based platforms，every operational aspect of an industry becomes transparent. This helps establish a risk management mechanism in which value，product，money and information flows are taken as a whole. At the same time，digitalized and intelligent risk management is made possible by dynamic data，whether structured or unstructured，collected across the industry chain.

With the continuous integration of IT and the industrial Internet，the structure of supply chain management extends to include industry clusters. As the interaction expands along the supply chain and among industry chains，trade finance will evolve from individual platforms to a multi-layered and multi-dimensional financial ecosystem，which combines upstream and downstream segments.

That means that there will be new categories of participants in the supply chain and new funding channels. Present trade finance platforms are capable of including public services and integrating their information. This can be achieved through the participation of regulators and other arms of the civil service for a wide range of government functions from tax collection to commodity inspections and the publication of official documents.

Funding channels will also become more diversified. Funds from the insurance sector，trusts，and industry as well as individual and institutional financial wealth management products can be incorporated. Pre-ABS industrial funds may be a key first step in supporting supply chain finance enterprises with the launch of ABS products on public exchanges.     

Competition in the global supply chain has been fierce. In 2012，the US published the National Strategy for Global Supply Chain Security，which put strengthening the supply chain as part of the national security framework. Some international companies in China have started to move their production out of the country against a background of US-China friction. Meanwhile，major developed countries such as the US have adopted a policy of trying to convince manufacturers which had moved offshore to bring their production back home. These are manifestations of the intensifying global competition. In terms of supply chain finance，there will be further development in the coming years，with the aid of IT. Participants in the supply chain will benefit from the reduced transaction and financing costs. Cash flows will be improved and collaboration will become more efficient.

Progress is of special significance at this moment. Protectionism and efforts to roll back globalization are gaining momentum. The World Trade Organization has been weakened and multilateral organizations are facing great challenges. The shifting political currents are leading to the restructuring of the supply chain. During the process，IT-based trade finance will help China in its efforts to attract more high-quality foreign companies and advance to the top of the global supply chain.

More advanced financing will drive the upgrading of industry clusters along the supply chain，both upstream and downstream. As a result，domestic industry will become more competitive and this will push China ahead as the world economic and trade order is being reshaped.

With the application of blockchain technology，electronic and standard trading assets will become the trend. In addition to credit account receivables，which "Yunxin" deals with，there are various other types of accounts receivable. Those ensured by payment guarantees and under domestic letters of credit，as well as factoring and forfaiting assets can also be used in the form of electronic bond certificates. Blockchain allows them to be sub-divided，tracked，transferred or used for financing.

The expanded electronic and standard trading assets will bring a vast improvement to China's efforts to help small- and medium-sized enterprises with financing. At the same time，it is conducive to ABS and ABN businesses，helping build to scale the trading of these assets.

There are risks which cannot be overlooked. IT makes risks more complex and unpredictable.  Meanwhile the technology is immature at present. China's central bank published in 2018 on its official website a thesis which discussed the defects of blockchain technology-based apps and suggested there might be a bubble in investment and financing.

In practice，trade finance may become little more than loans made on electronic platforms. This was the case in the collapse of wholesale e-commerce platform "Jinyindao" in 2018. This so-called risk management system made grand promises but provided practically no real services.   

In the face of a fast-changing international environment，China's trade finance is pursuing innovation-driven development. IT-driven standardized e-assets will help China's trade finance develop platforms，and upgrade them into a tightly integrated eco-system of industrial clusters. China in turn will be able to enhance its competitiveness and keep pace with the restructuring of the global supply chain system.

The author is the head of the Yunhe sub-branch，Hangzhou Branch，Bank of Beijing.

He is also an expert in DOCDEX at the International Chamber of Commerce，an expert in letters of credit and in letters of guarantee at the China National Committee of the International Chamber of Commerce.