Receivable management in China
Receivables Finance & Protection
Index
General Environment in China Present Market
Protection Business
Receivables Finance Business
Coface Strategy
Opportunities and Challenges
General Environment (1)
¾ No. 3 economy worldwide with 1,332M population. GDP reached US$4,402 billion in 2008.
¾ Country @rating: A3 / Business climate rating: B / Medium–term rating: low risk
¾ Economic growth by double digit and peak at 11.4 % in 2007. For 2008 and Q1 2009, the growth rate were 9% and 6.1% respectively.
2004-2008 China GDP and Growth Rate
- 5,000 10,000 15,000 20,000 25,000 30,000 35,000
2004 2005 2006 2007 2008
RMB billions
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
GDP
GDP grow th rate
So urce: Natio nal B ureau o f Statistics 18,232
15,988
21,087
24,662
30,067
General Environment (2)
¾ Total export and import reached US$1,317 billion and US$1,061 billion respectively up to November 2008.
¾ 2
ndlargest exporter in the world with major export markets are European Union (20.5%), U.S.(17.7%) and Hong Kong (13.4%, for essentially re-exports) in 2008.
¾ Currency used is Yuan or Renminbi (CNY)
• Foreign currency regulations were eased in July 2005 and the currency revalued against the dollar.
• Yuan rose by ~6.4% against dollars since the
beginning of 2007, a further 3.6% up to March
2008 and remained relatively stable since then.
General Environment (3)
- 200 400 600 800 1,000 1,200 1,400
2004 2005 2006 2007 2008/10
2004-2008/10 Export Markets
EU USA Hong Kong ASEAN
Japan ROK India Russia
Taiw an United Arab Emirates Canada Australia
Others USD billions
593
762
969
1,218 1,202
So urce: M OFCOM
Exports and Imports in China
- 200 400 600 800 1,000 1,200 1,400
2004 2005 2006 2007 2008/11
USD billions
Exports Imports
Source: MOFCOM
Factoring Volume in China
3,555 4,150
12,000
760
16,650
30,000
1,680 2,300
16,326
25,000
- 5,000 10,000 15,000 20,000 25,000 30,000 35,000
2004 2005 2006 2007 2008
Domestic International Euro millions
Source: http://w w w .factor-chain.com 1
1around 10.7% through FCI
Present Market (1)
¾ Chinese companies focus more on risk management after 20 years of
emphasis on top line revenue growth. Economic crisis has encouraged and accelerated the process.
¾ A large number of exporters in China are under financial pressure resulted
from reduced orders and delayed payment of credit accounts.
Present Market (2)
• Chinese exporters are facing strong competition from foreign companies which are affected by devaluation of local currency and, thus, can provide better export price.
• The State Council released a series of preferential
policies in late May 2009 in order to reduce export risk, including enhancing export credit insurance application coverage, arranging US$84 billion for export credit
insurance, reducing premium written rates, etc.
• Cheaper export credit insurance would ease exporters’
payment risks and improve their financing. This has
contributed to development of protection and receivables
finance products. Both of them are developing in a fast
pace as a standalone or packaged product.
Protection Business (1)
¾ Highly regulated business under China Insurance Regulatory Commission (CIRC)
¾ Export insurance:
– Export credit insurance coverage on China’s general export trade is about 3.2% in 2008. Penetration is low.
– Only available from the state-owned company – China Export & Credit Insurance Corporation (also known as Sinosure)
– Sinosure was set up by the government in 2001, with the mandate to promote exports and cross-border
investments through export credit and investment
insurance.
Protection Business (2)
¾ Domestic insurance:
– People’s Insurance Company of China «PICC » (government owned) – Other major players include local-
foreign cooperation e.g. Ping An –
Coface (as the market leader),
Receivables Finance Business (1)
¾ Receivables can be accepted as collaterals since October 2007 by law.
¾ Factoring business in China are mostly conducted by banks
¾ Coface operates through Natixis
Receivables Finance Business (2)
¾ Non-Banking Factoring
• Not under any regulatory body specific for factoring business
• mostly pushed by foreign players registered in China not as a financial institution but as a general industrial
& commercial entity
• Only 3 companies are officially registered and accepted as factoring services providers, all established in Tianjin i.e.
• Since 2006, the central government has placed
Binhai District of Tianjin on the list of «National
Synthetically Reform Testing Districts». The Tianjin
local government welcomes foreign players to set up
factoring companies in Tianjin and provides great
support to company registration with tax incentives.
Coface solution for export factoring
Client (in PRC)
Coface Greater China Finance
(Import Factor)
Buyers (outside PRC)
In PRC
Outside PRC
Natixis Shanghai
(Export Factor) Offer Letter
Factoring Agreement Bank Authorization
(Natixis to operate the Collection A/C on Client’s behalf)
Memorandum of Understanding Inter-Factor Agreement Operational Manual
Agency Agreement (Client acting as undisclosed agent of Import Factor for receivable management)
Invoice
(with settlement instruction to Collection Account)
