Trade finance is changing the world’s largest exporting economy. Total trade volume in China was 24.59 trillion RMB ($3.95 trillion) last year, even despite a fall in import and export volumes.
“We believe trade finance in China is set to grow, thanks to the growing internationalization of the RMB, Chinese government policy decisions, and additional lending by online banks,” writes Zennon Kapron, head of KapronAsia in a blog post.
Kapron notes that the Chinese currency is playing a more prominent role in global trade today than ever before. The RMB is now the second-most used currency for trade finance in the world, up from 17th position in April 2010.
“As a result of growing trade flows with China, there has been a greater demand for traded products and services denoted in RMB globally. Add to that expectations that China will further open up its financial markets, the RMB’s market share in trade settlement is only set to grow,” he wrote.
Kapron also said that policy decisions such as the Chinese government’s recent ‘one belt one road’ policy, introduced in 2013 to encourage increased trading and closer ties with countries in Asia, Europe, and Africa, is likely to fuel more demand for exports and in turn, more trade finance.
“We also predict trading volumes will shift from basic commodities to more high tech products and labor contracting services, as Beijing has been emphasizing a ‘cut overcapacity and excess inventory’. In this aspect, trade finance would be key to providing support to exporters and importers,” he continued.
Kapron also added that the development of new Chinese digital banks and the integration of e-commerce and finance is also leading to new sources of trade finance, helping to grow the industry.