China is raising the bar for cash management and trade finance

07/11/2022

China’s leadership in digital payments has reshaped the way companies think about cash management. It now promises to transform cross-border commerce with the world’s second-biggest economy.

In China, signs inviting payment via Alipay or WeChat Pay are a feature of virtually every retail outlet – from major department stores to corner shops. 

According to the World Bank’s latest Global Findex report1, 81.5% of Chinese adults made a digital merchant payment in 2021. That figure is more than double the global average, and higher even than the euro area. It is a ubiquitous reminder of China’s leadership in digital payments.

The effects of this mass digitalisation have also been felt in the corporate sector. Thanks to China’s digital expertise and the sheer scale of the opportunity in a country home to 1.4 billion people, countless fintech companies have been able to develop solutions that make it easier to transfer cash or goods, or ease the regulatory burden. 

The next frontier, however, holds even greater promise. 

Local leaders

China’s expertise in financial technology goes far beyond retail payments. 

It is also a leader in IoT (the Interest of Things) connected devices, which can be used to allow companies to track shipments and speed up the flow of funds between buyer and supplier. Ant Group, which runs the Alipay network, leverages on its AntChain blockchain solution and location data to provide trade financing as shipments move along supply chains, for instance accelerating payments once the goods clear customs or reach their final destination without waiting for manual confirmation2.  

Artificial intelligence (AI), identified as a strategic priority by China’s government, allows companies to unlock value by processing vast amounts of data far faster than is possible manually. This means companies can better predict demand and liquidity requirements in the future – both internally, across different business units, and externally, for their clients and their suppliers. 

Perhaps the most exciting new technology for corporate treasurers is distributed ledger technology (DLT) and blockchain. 

It is a common misconception that China’s clampdown on cryptocurrencies has curtailed the use of blockchain technology. In fact, while China has ruled out a decentralised future for finance, initiatives using DLT and permissioned blockchain protocols are well established and are becoming more relevant than ever. 

Walmart China has been using blockchain technology to track food along the supply chain since 20163. JD.com and other major online retailers now offer one-click traceability for thousands of products through blockchain4.  

Blockchain technology is also being used in China to verify trade shipments. This also creates value for trading companies, as it allows them to monitor the whereabouts of their goods and monetise trade flows more quickly, without waiting for lengthy manual verification processes. Banks in China are actively developing their own blockchain solutions or cooperating with third-party providers to unleash the power of blockchain.  

These next-generation technologies are already essential tools for treasurers operating in China today. By working with financial partners who can offer unprecedented visibility over the flow of goods and payments, they free up valuable cash for other uses. 

Crossing borders

These technologies are now beginning to cross borders. 

At the public policy level, the Hong Kong Monetary Authority (HKMA) and the People’s Bank of China (PBOC) are supporting eTrade Connect5, a blockchain pilot project to ease trade and trade financing in the Greater Bay Area. 

The private sector has also provided proof of blockchain’s potential to transform the trade and liquidity cycle. 

Resources giant BHP Group and China Baowu completed their first iron ore trade, valued at around Rmb1 billion (US$156 million), on MineHub’s blockchain-based platform  in April 2020.  

BHP also piloted the use of blockchain to trace copper concentrate shipments7 with China Minmetals Non-Ferrous Metals in the second half of 2021. 

Earlier this year Syngenta, owned by China National Chemical Corp, used TradeLens, a supply chain platform powered by blockchain technology8, to complete a paperless trade financing that saved 10 days of document processing time on a shipment from South Korea to Bangladesh.

A digital future

These applications will become even more powerful with the digitalisation of the Chinese currency. 

e-CNY, the digital yuen, is poised to send cross-border commerce into another gear by bringing the innovative technologies that have streamlined the domestic market to the international arena. 

According to the PBOC’s white paper, China’s central bank digital currency (CBDC) might not use full blockchain technology itself – possibly because the performance of blockchain is still insufficient to power domestic settlement on a large scale. But the e-CNY enables payments to be made instantly and offers increased traceability to guard against fraud and compliance risks. 

The digital currency is already in use in more than a dozen major cities as part of a pilot project, where e-CNY signs are appearing alongside the Alipay and WeChat Pay symbols at cashiers. 

Although there is no official schedule, China’s central bank is also preparing to roll out the digital yuan internationally. It is working with various stakeholders such as the HKMA, Bank of Thailand and the Central Bank of the UAE on the mBridge project9 to develop an interoperable platform for international payments using CBDCs in the region. 

Societe Generale is actively supporting the mBridge initiative as a participant in the pilot project, continuing our leading role in the development of digital finance, for instance with the launch of regulatory-compliant security tokens10 in Europe.

We expect CBDCs, blockchain and other emerging digital technologies will be part of a bright future for financial services. China’s digitalisation is bringing that future within reach. 
 

1. Data (worldbank.org)
2. www.antchain.net/productsAndSolutions/productsDetail/Trusple
3. one.walmart.com/content/globaltechindia/en_in/Tech-insights/blog/Blockchain-in-the-food-supply-chain.html
4. developer.jdcloud.com/article/1251
5. eTradeConnect
6. www.bhp-china.cn/media-and-insights/news/2020/05/bhpandchinabaowu.html
7. Three big questions blockchain is helping us answer (bhp.com)
8. Syngenta and HSBC complete paperless trade finance transaction on the TradeLens platform
9. www.bis.org/publ/brochure_mbridge.pdf
10. A world first for Societe Generale: the admission of security tokens on the Luxembourg Stock Exchange - Societe Generale

Gavin Wang Head of Global Transaction Banking for China Societe Generale