Risk Management Of Trade Finance For Chinese State-owned Enterprises

Trade finance has caused big losses to many state-owned enterprises in China,thus State-owned Assets Supervision and Administration Commission of the State Council(SASAC)requires Chinese state-owned enterprises take the risk prevention of trade finance as a major task in enterprise management.However,providing an accurate definition to trade finance has become a difficulty in risk prevention of trade finance due to the similarity among trade finance,normal agency business and credit sales.The paper presents the risk preventing regulation issued by SASAC and cases of big losses to Chinese state-owned enterprises caused by trade finance.Taking one certain Chinese state-owned enterprise and its subsidiary corporation's method of risk prevention for trade finance as an example,the paper summarizes the characteristics and shortages of the way that Chinese state-owned enterprises deal with the risks of trade finance.Starting from the motivation for establishing trade finance,the paper discusses the factors of trade finance.Further,the paper comes up with the way to prevent trade financing risks,by establishing both hierarchical evaluation model for trade finance and evaluation system of client credit.The core argument of this paper includes following aspects: Defining trade finance accurately will contribute to risk prevention.However,it is the lack of controlling ability under the title of cargo,fund and client credit that brings risks to enterprises.Therefore,by forbidding all kinds of trade finance is not only ineffective to risk prevention,but also harmful to regular business.As a result,the paper recommends that people focus on risk recognition and responding when doing the risk management for trade finance and bring it to the enterprises' overall strategy of risk management.