International Trade Finance Innovation

With changes in the product structure, trade subject and trade mode of China, the enterprises’ needs for trade financing services also experience huge changes. The financial institutions are required to change correspondingly in their business types and processes. The government should also make relative adjustments in controls of capital account and access restrictions for related industries in order to create a favorable external environment for the development of trade financing services from the aspect of policy and system. Based on the analysis of changes of the needs for Chinese enterprises in trade financing services, this paper focuses on the system, policy factors and its influence mechanisms, which restrict the development of China’s trade financing services, and explore various policy measures needed to promote the development of China’s trade financing services so that the volume of our foreign trade can grow and the structure of it can be optimized.Based on the transaction cost theory and principal-agent theory, this paper explains the endogeneity of emergence and development of financial intermediary in the field of international trade. By reducing the costs of transaction and relieving the adverse selection and moral hazard caused by information asymmetry, financial intermediary has played a catalytic role in the development of international trade. From the view of two basic functions of trade financing-capital financing and risk management, China’s current trade financing services can be divided into four categories:capital financing-based trade financing services, risk management-based individual business, combination of trade financing services and the forms of trade financing services suitable for SMEs’ development in recent years. Different kinds of trade financing services emphasize on different parts according to their functions. China’s trade financing services mainly focuses on capital financing at the very beginning, but with the continuously upgrading marketization and constantly increasing market demands, the forms of financing services also expand and deepen accordingly.To make a further assay of the institutional factors that hinder the trade financing services in China, this paper respectively analyses problems existing in forfaiting, international factoring and innovation and development of export credit insurance business. It also deeply discusses the current situation of business, Chinese and foreign development difference, and direct and deep-rooted institutional factors hindering business innovation and development. Backwardness in the construction of credit system, imperfection in laws and regulations of bills, excessive market supervision and limitations of market access cause the lagging development of bill market and impede the innovation and development of forfaiting business. Strict limitations of market access and lack of relevant legislations block the expansion of international factoring business. Market monopoly and deficiency in legal guarantee make the export credit insurance business grow behindhand and then lead to the inadequate innovation and development of trade financing services of the export credit insurance.This paper also analyses the effects of enterprise scale and industry difference on the demand of trade financing. The former mainly discusses the possible innovation directions of processing trade financing of SMEs. Exporters of imported materials processing have to accept more and more payments like D/P and D/A, even T/T after the goods arrive. This paper holds that integrating other existing financing services into the supply chain financing can promote the credit level of core enterprises and improve the financing ability of processing trade enterprises. Adding international factoring and export credit insurance, which is equivalent to payment by the buyer, can raise the credit level of foreign core enterprises, change the form of letter of credit, and create favorable conditions itself by making use of the supply chain financing. The latter mainly analyses the institutional factors that hinder the innovation and development of ship trade financing.In conclusion, this paper believes that there is a mismatch between the supply and demand in China’s trade financing services. The reason for insufficient innovation and development of our services is some institutional factors, including (1) the lack of competition leading to the deficiency of innovation power in bank’s business;(2) the defective bill market restraining the development of new trade financing services like forfaiting and factoring;(3) the imperfection of capital market hindering the pace of trade financing services related to products like ship and large-scale machinery equipment. To fundamentally promote the innovation and development of trade financing services, we need to expand market access of trade financing services of private and foreign financial institutions, gradually remove the business restrictions of financial institutions, and promote the perfection and maturity of capital market.