On September 27, China’s petrochemical industry saw its first digital warehouse receipt pledge financing transaction that integrates blockchain and Internet of Things (IoT) technology successfully implemented in China.
Participants included China’s Sinochem Energy High-Tech, China Construction Bank Inner Mongolia Branch, and Nanchu Management Group Co. The financing party, Beijing Longrunkaida PEC Products, is a large northern Chinese trader in lubricant and base oil.
From the application for issuance of warehouse receipts to the bank’s appropriation of the loan, it took less than one day with a cost 40 per cent lower than that of common trade finance services in the market, Sinochem said in a release.
Why financing is difficult and expensive for petrochemical SMEs
Presently, the continuous spread of global Covid-19 pandemic and the safety and environmental management upgrade are driving the operating costs of the entire industry up. Petrochemical companies are facing increasing financial pressures every day. However, for a long time, the traditional credit risk control system emphasizes on “reviewing the credit of the financing entity but not the goods”, making it difficult for “small enterprises with high value of movable assets” to meet the credit granting conditions of financial institutions.
On one hand, it is difficult for financial institutions to track the transaction process of bulk commodities due to the lack of effective risk control measures, especially those of “controlling goods” which could lead to frequent risk issues like false warehouse receipts, unclear property in goods, repeated pledges, impairment or loss of collateral. Financial institutions have been affected so badly to tighten lending on warehouse financing.
On the other hand, since warehousing companies often fail to get updates on changes in goods property and pledge rights, disputes on goods property and warehouse receipt finance become commonplace. Unscrupulous enterprises would forge seals and issue false inventory certificates, delivery documents, amongst others. After being duped, the deceived company often sues the warehousing company as well, who hence have little choice but to quit issuing warehouse receipts and related business with financial supervision, but focus solely on warehousing business with limited income.
Blockchain digital warehouse receipts are a panacea for financing problems
Based on a deep understanding of the financial pain points of the petrochemical supply chain, Sinochem Energy High-Tech has built a Blockchain Digital Warehouse Receipt Platform which opens up third-party warehousing services, a key node of liquid logistics. The company not only conducts consistent research on digital warehouse receipt pledge and demonstrates the financing business model to China Construction Bank constantly, but continuously polishes products and operating plans.
From the issuance of digital warehouse receipts by warehousing companies to pledges and loans, Sinochem Energy High-Tech participates as a trusted technology provider and is highly recognized by China Construction Bank. Transforming the traditional commodities in circulation into safe and efficient digital assets with good liquidity that can penetrate directly to the bottom layer, the Platform has shaped a credible asset system with “Blockchain Digital Warehouse Receipts” as a medium.
“Compared with traditional print warehouse receipts, the Platform is the first to realize strict correspondence between digital warehouse receipts and stored goods. It uses IoT technology to monitor the goods under digital warehouse receipts closely, to ensure that each warehouse receipt directly assures the existence of goods. In addition, the platform realizes swift goods delivery, receipt pledge, as well as integration of “four flows” (the receipt flow, capital flow, contract flow, and goods flow). Moreover, blockchain technology ensures that the recorded data cannot be tampered. This could guarantee the uniqueness and traceability of the data, and greatly improve the industry’s credit rating,” said Sun Liming, vice president of Sinochem Energy High-Tech.
Connecting financial institutions and industries to bolster the development of the real economy
On September 22, eight Chinese ministries or commissions including the People’s Bank of China and the Ministry of Industry and Information Technology, issued the Opinions on Regulating the Development of Supply Chain Finance and Supporting Stable Cycle, Optimization and Upgrade of the Industry Chain of Supply Chain. It requires financial institutions and business entities to strengthen information sharing and collaboration; improve the digitalized level of supply chain financing settlements; standardize the development of supply chain inventories, warehouse receipts, and order financing; and strengthen the risk protection support for supply chain finance.
“The platform is highly consistent with the ‘combination of financial technology and supply chain scenarios to prevent supply chain financial risks’ requirement listed in the ‘Opinions’. It achieves the transparency in warehousing data, and dynamic monitoring on collateral quantity and value, etc. In the future, we will expand on our collaboration with Sinochem Energy High-Tech to reduce financing difficulties, operating costs and capital costs for supply chain companies. We will take practical actions to stimulate the quality and efficiency of the real economy,” China Construction Bank said in a statement.
Sinochem Energy High-Tech will work with China Construction Bank, China Association of Warehousing and Distribution, warehousing companies, commodity inspection agencies, goods owners, and Shanghai Petroleum and Natural Gas Exchange Co., Ltd to jointly establish an ecosystem of digital warehouse financing, to consistently help financial institutions to improve loan risk control capabilities; help petrochemical warehousing companies to obtain incremental income; and SMEs to solve financing problems. Sinochem Energy High-Tech will strive to further promote the optimization and upgrade of supply chains and related industrial chains.
