Study On Relationship Between International Trade Finance And International Trade

International trade financing is the accommodation of funds provided by avariety of trade financing institutions to participants in international businessduring the process of international trade. With the passage of time and evolutionof economy, international trade financing, along with its basis internationalsettlement continued changing, expanding its applicable scope and deepening itsinfluence. Nowadays, it has become one of the most important financial services.According to the estimation by International Chamber of Committee,approximately80%-90%of the global trade need trade financing to solve theircash flow problem. Governments view international trade financing as aneffective weapon to regulate their macro external trade. Via establishing policytrade financing institutions and directing commercial trade financing institutionsthey use trade financing to promote the healthy development of nationaleconomy.In countries where financial industry is mature and sophisticated, revenuefrom operation of trade financing business accounts for more than40%of thetotal revenue of the bank; these countries are typically the pioneers in theinnovation of international trade financing. The progress of international tradeentails more effective, secure and economic means of settlement, which hasinduced the innovation of international trade financing. Traditionally, theconventional trade financing instruments such as Bill Discount and PackingLoans were heavily resorted to as primary channels to accommodate funds,while now modern trade financing instruments like factoring, Forfaiting, Structured Trade Financing and Supply Chain Financing are becomingincreasingly popular.It is an unquestionable fact that China has achieved astounding economicfeast over the past three decades, which is commonly described to thehigh-speed development of its external trade, export in particular. In2012,China’s GDP surpassed51trillion Yuan, becoming the second largest economyin the world. The aggregate value of export and import amounted to over25trillion Yuan, among which export value summed to over13trillion Yuan,representing25.49%of the GDP. According to the statistics of previous years, itis anticipated that the external trade of China will continue to seize considerableportion of its national economy. Undoubtedly, the progress of internationalsettlement and international trade financing is essential to these attainments. Thescale of international trade financing in China has maintained strong momentumin growth, exceeding500billion USDollars in2011.In this Paper, we firstly analyzed the changes and effects of internationaltrade finance using the related descriptive data. On this basis, the relatedtheories are on research, which includes three items: the relation betweeninternational trade and finance development, the existence of trade finance gapand the theory of government interruption. The theories indicate: theinternational trade finance promotes the development of trade and optimizationof trade structure. Based on above research, we turned to China, we analyzedthe international trade finance effect via the empirical study. International tradefinance played some role in international trade using quarterly data of China’sinternational trade fiancéand international trade from2007-2012.The Grangercausality test showed that international trade finance is the cause of theinternational trade. At last some suggestions are made to promote thedevelopment of international trade finance in China.