China Steps up Scrutiny of Supply Chain Financing


The Chinese central government has issued a new directive stepping up regulatory scrutiny of supply chain financing, due to concerns over abusive practices and “fraudulent transactions.”

The “Opinions Concerning Standardisation of the Development of Supply Chain Financing and Supporting Stable Circulation and Optimisation and Upgrade of Supply Chain Industry Chains” (关于规范发展供应链金融 支持供应链产业链稳定循环和优化升级的意见) was issued on 22 September by a raft of leading central government agencies, including the People’s Bank of China (PBOC) the Ministry of Industry and Information Technology (MIIT), the Ministry of Commerce (MOC) and the China Banking and Insurance Regulatory Commission (CBIRC).

The Opinions call for “preventing various forms of risk in relation to supply chain financing,” stipulating that “core enterprises are not permitted to wilfully occupy the accounts of upstream and downstream enterprises, and use affiliate organisations to obtain profits from supply chain financing.”

“Supply chain financing platforms should adopt lawful and compliant financial tools for the circulation of accounts payable, and are not permitted to seal circulation or restrict financial services parties.

The Opinions target “squeezing out and occupation of the profits of micro, small and medium-sized enterprises by core enterprises and third party supply chain platforms in the name of supply chain financing.”

Industry observers in China say that a sizeable number of core enterprises participating in supply chain financing have extended the accounts period for upstream and downstream businesses, or established their own factoring companies, micro-loan companies or financial enterprises to package accounts receivable for financing via factoring of assets.

In recent years growth of accounts receivables in China has far outpaced overall economic growth, while the accounts receivable turnover rate has seen ongoing declines.

The Opinions also call for “strict prevention of false transactions and duplicate financing risk,” and for banks and other financial institutions to “strictly review the veracity of supply chain financing and increase vigilance.”

Underwriters and asset managers must “pragmatically engage in due diligence and required risk control procedures for asset securitisation and asset management products whose underlying assets are accounts receivable.”

The Opinion further mandate improvements to information disclosures, and mandate that “financial institutions, core enterprises, government authorities and third party specialist agencies strengthen information sharing,” as well as “establish upstream and downstream integrated, digitised and smart information systems and credit assessment risk management system.”

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