Import and Export Financing in China
China's import and export financing system
The major financial players in import and export finance comprise two segments in China: banking institutions and insurance institutions.
Banking institutions
In China, banks can devise various financial vehicles to provide many kinds of trade financing services to firms that meet their qualification standards. The major players in the banking industry comprise many banks with different functions. There are three policy banks, four solely state-owned banks, 10 small and mid-sized shareholding commercial banks, 100 small and mid- sized shareholding city commercial banks, and 191 foreign financial institutions. All of these are under the auspices of the central bank – People's Bank of China. More specifically:
? The Export–Import Bank of China (Eximbank) is the only policy-oriented bank;
? Bank of China, Construction Bank of China and Agriculture Bank of China are solely state-owned;
? Bank of Communication, Everbright Bank, CITIC Enterprise Bank, Huaxia Bank, Minsheng Bank, Merchant Bank, Shenzhen Development Bank, Guangdong Development Bank, Shanghai Pudong Development Bank and Fujian Xingye Bank are shareholding commercial banks.
Insurance institutions
The major Chinese insurance institutions related to foreign trade are Export Credit Insurance Company of China and People's Insurance Company of China.
Financing tools in import and export
Banking services
Among the various foreign trade financing services available, the export credit funded by the government is provided by Eximbank, whereas general commercial loans are provided by commercial banks. Their businesses cover:
? export seller's credit, export buyer's credit, forfeiting, factoring, discounting, project financing, syndicated loans and offshore construction loans;
? issuance, acceptance, negotiation and confirmation of letters of credit, bank guarantees, export lending, packing credit, import lending, delivery guarantee, import credit line service and entrusted collection.
In addition, the Eximbank also offers countermeasures against foreign exchange exposure, which include the forward contracts and other derivatives like currency and rate options, hedging, swapping, etc.
Insurance services
The Export Credit Insurance Company of China and People's Insurance Company of China provide insurance coverage over the following:
? short-term export credit;
? long and mid-term export credit;
? political risk for Chinese overseas investment;
? political risk for foreign investment in China;
? import and export cargo transportation;
? seaborne vessels;
? others.
The major lines of Eximbank
The business lines of Eximbank primarily include: export credit (seller's credit and buyer's credit), overseas guarantees, foreign favourable loans and foreign government concessionary loans.
Export seller's credit is the financial service provided to Chinese exporters which enables exporters to be in a position to accept deferred payment by foreign importers. This includes five different types of arrangement: project loans, short and mid-term credit lines, overseas engineering project loans, offshore contract manufacturing loans and overseas investment loans.
Export buyer's credit refers to the long and mid-term loans in favour of foreign borrowers. Its purpose is to enable foreign importers to be in a position to offer upfront payment to Chinese exporters. This is an option in support of China's exports of goods and technology services.
Overseas guarantees denote the promise to pay offered to overseas creditors or beneficiaries in the form of a letter of guarantee. In the event that the debtor fails to honour its commitment to pay under contract stipulations, the bank will undertake the payment responsibility specified in the letter of guarantee. Such guarantees include such items as borrowing, tendering, contract performance and contract deposit. They cover areas such as the export of mechanical and electronic products, high-tech products and complete sets of equipment, offshore engineering projects, international tenders by domestic financial organizations and foreign government loans.
Foreign favourable loans are long- and mid-term low-interest loans offered to other developing countries by the Chinese government in the nature of foreign aid. Beneficiaries of this type of loan are Chinese and foreign firms who are able to construct production facilities in the designated countries. These facilities must demonstrate the prospect of economic return and the capability to pay back. Such loans can also be granted for the construction of infrastructures and social welfare projects which demonstrate the capability to pay back. Exim- bank is the only bank to underwrite this type of loan.
Foreign government concessionary loans are those favourable loans and mixed loans offered by foreign governments to the Chinese government. Eximbank acts as an agent under the mandate of the Chinese Ministry of Finance to dispense these loans. Mixed loans are a combination of favourable loans offered by foreign governments and commercial loans offered by foreign banks. Eximbank is the primary concessionary bank for the loans offered by foreign governments.
Cultural Differences and Clashes in Communication
Key differences between Chinese and western cultures
Chinese culture
Large power distance
Reverence to rank and power
Bureaucracy
Strong tendency of risk avoidance
Dominance of group interest and values
Doctrine of the mean and ambiguity
Resistance to change
Lack of original creativity
Pursuit of moral accomplishments
Cultivation of personal virtue
Despise material gains
'Face' is important
Connotation and tolerance
Western culture
Small power distance
Equality among people
Authority of law
Strong tendency of risk taking
Dominance of individualistic interest
Clarity in expression
Acceptance of change
Pro-innovation
Pursuit of objective being
Knowledge and skill learning
Recognition of material gains
'Face' is unimportant
Candour and rigidity
Sources of cultural clashes in communication
Cross-cultural communication problems:
Complaints from western managers
Marathon negotiations and decision-making
Decisions reached by discussion instead of voting
Indirect expression of opinions
Great importance is given to 'face'
Dependent on Guanxi and personal emotions in business dealings
Submissive and lack creativity
Ambiguity in policies, laws and regulations
Bureaucracy
Excessive government intervention
Complicated and closely-knit interpersonal relations
Complaints from Chinese managers
Lack of understanding of the unique local environment
Over-rigid in handling business affairs and lack of flexibility
Impersonality and rule-orientation without giving consideration to circumstances
Lack of thrift in the use of corporate money
Disregard local management suggestions
Individualistic and arbitrary in decision-making
Money-making is the top priority
Lack of respect and care for staff/employees
Ignore the interests of Chinese partners
Arrogance and conceit
Managing cross-cultural differences for cross-cultural advantage
A possible solution for cultural differences could come from the following:
? adapting to each other's culture
? building shared values
? adjusting decision making references
? forming a unique management style accommodating both cultures
? establishing effective interpersonal communications that are free from prejudiced assumptions.
For more Information
* Asian Business. Business with China, Europe,India, Arabs, International Business and Cultural Books. *
China's import and export financing system
The major financial players in import and export finance comprise two segments in China: banking institutions and insurance institutions.
Banking institutions
In China, banks can devise various financial vehicles to provide many kinds of trade financing services to firms that meet their qualification standards. The major players in the banking industry comprise many banks with different functions. There are three policy banks, four solely state-owned banks, 10 small and mid-sized shareholding commercial banks, 100 small and mid- sized shareholding city commercial banks, and 191 foreign financial institutions. All of these are under the auspices of the central bank – People's Bank of China. More specifically:
? The Export–Import Bank of China (Eximbank) is the only policy-oriented bank;
? Bank of China, Construction Bank of China and Agriculture Bank of China are solely state-owned;
? Bank of Communication, Everbright Bank, CITIC Enterprise Bank, Huaxia Bank, Minsheng Bank, Merchant Bank, Shenzhen Development Bank, Guangdong Development Bank, Shanghai Pudong Development Bank and Fujian Xingye Bank are shareholding commercial banks.
Insurance institutions
The major Chinese insurance institutions related to foreign trade are Export Credit Insurance Company of China and People's Insurance Company of China.
Financing tools in import and export
Banking services
Among the various foreign trade financing services available, the export credit funded by the government is provided by Eximbank, whereas general commercial loans are provided by commercial banks. Their businesses cover:
? export seller's credit, export buyer's credit, forfeiting, factoring, discounting, project financing, syndicated loans and offshore construction loans;
? issuance, acceptance, negotiation and confirmation of letters of credit, bank guarantees, export lending, packing credit, import lending, delivery guarantee, import credit line service and entrusted collection.
In addition, the Eximbank also offers countermeasures against foreign exchange exposure, which include the forward contracts and other derivatives like currency and rate options, hedging, swapping, etc.
Insurance services
The Export Credit Insurance Company of China and People's Insurance Company of China provide insurance coverage over the following:
? short-term export credit;
? long and mid-term export credit;
? political risk for Chinese overseas investment;
? political risk for foreign investment in China;
? import and export cargo transportation;
? seaborne vessels;
? others.
The major lines of Eximbank
The business lines of Eximbank primarily include: export credit (seller's credit and buyer's credit), overseas guarantees, foreign favourable loans and foreign government concessionary loans.
Export seller's credit is the financial service provided to Chinese exporters which enables exporters to be in a position to accept deferred payment by foreign importers. This includes five different types of arrangement: project loans, short and mid-term credit lines, overseas engineering project loans, offshore contract manufacturing loans and overseas investment loans.
Export buyer's credit refers to the long and mid-term loans in favour of foreign borrowers. Its purpose is to enable foreign importers to be in a position to offer upfront payment to Chinese exporters. This is an option in support of China's exports of goods and technology services.
Overseas guarantees denote the promise to pay offered to overseas creditors or beneficiaries in the form of a letter of guarantee. In the event that the debtor fails to honour its commitment to pay under contract stipulations, the bank will undertake the payment responsibility specified in the letter of guarantee. Such guarantees include such items as borrowing, tendering, contract performance and contract deposit. They cover areas such as the export of mechanical and electronic products, high-tech products and complete sets of equipment, offshore engineering projects, international tenders by domestic financial organizations and foreign government loans.
Foreign favourable loans are long- and mid-term low-interest loans offered to other developing countries by the Chinese government in the nature of foreign aid. Beneficiaries of this type of loan are Chinese and foreign firms who are able to construct production facilities in the designated countries. These facilities must demonstrate the prospect of economic return and the capability to pay back. Such loans can also be granted for the construction of infrastructures and social welfare projects which demonstrate the capability to pay back. Exim- bank is the only bank to underwrite this type of loan.
Foreign government concessionary loans are those favourable loans and mixed loans offered by foreign governments to the Chinese government. Eximbank acts as an agent under the mandate of the Chinese Ministry of Finance to dispense these loans. Mixed loans are a combination of favourable loans offered by foreign governments and commercial loans offered by foreign banks. Eximbank is the primary concessionary bank for the loans offered by foreign governments.
Cultural Differences and Clashes in Communication
Key differences between Chinese and western cultures
Chinese culture
Large power distance
Reverence to rank and power
Bureaucracy
Strong tendency of risk avoidance
Dominance of group interest and values
Doctrine of the mean and ambiguity
Resistance to change
Lack of original creativity
Pursuit of moral accomplishments
Cultivation of personal virtue
Despise material gains
'Face' is important
Connotation and tolerance
Western culture
Small power distance
Equality among people
Authority of law
Strong tendency of risk taking
Dominance of individualistic interest
Clarity in expression
Acceptance of change
Pro-innovation
Pursuit of objective being
Knowledge and skill learning
Recognition of material gains
'Face' is unimportant
Candour and rigidity
Sources of cultural clashes in communication
Cross-cultural communication problems:
Complaints from western managers
Marathon negotiations and decision-making
Decisions reached by discussion instead of voting
Indirect expression of opinions
Great importance is given to 'face'
Dependent on Guanxi and personal emotions in business dealings
Submissive and lack creativity
Ambiguity in policies, laws and regulations
Bureaucracy
Excessive government intervention
Complicated and closely-knit interpersonal relations
Complaints from Chinese managers
Lack of understanding of the unique local environment
Over-rigid in handling business affairs and lack of flexibility
Impersonality and rule-orientation without giving consideration to circumstances
Lack of thrift in the use of corporate money
Disregard local management suggestions
Individualistic and arbitrary in decision-making
Money-making is the top priority
Lack of respect and care for staff/employees
Ignore the interests of Chinese partners
Arrogance and conceit
Managing cross-cultural differences for cross-cultural advantage
A possible solution for cultural differences could come from the following:
? adapting to each other's culture
? building shared values
? adjusting decision making references
? forming a unique management style accommodating both cultures
? establishing effective interpersonal communications that are free from prejudiced assumptions.
For more Information
* Asian Business. Business with China, Europe,India, Arabs, International Business and Cultural Books. *
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