INTERNATIONAL INSTITUTE OF GREEN FINANCE, CUFE
Chinese Version

China's commodity import - practical experience with green finance

Time:2017-11-06 From: Author:

This study focuses on the importation of imported agricultural products. In China's imports, the prominent features of agricultural products are: 


1) China depends on the import of agricultural products to feed its population,

2) in the amount of imports calculated in the value of the dollar, the proportion of agricultural products is relatively low.

3) the average unit value of agricultural products implied most of the greenhouse gas emissions. 


The third point is that the expansion of cultivated land is often associated with deforestation, and deforestation is the second largest source of global greenhouse gas emissions, the first of which is to generate electricity. The sustainable production of such products can greatly reduce the harm to the environment. This study explores the possibility of green commodity import financing in China in order to deal with the risks of this unsustainable agricultural production mode.


The importance of this subject to China


A series of professional seminars and support analysis in China provide information for this research project. In the process, China's banks, regulators and Chinese commodity importers acknowledge that supporting the sustainable development of soft commodity supply chain is a growing issue. Five strategic developments that make the work very important to China are identified, namely, diplomatic relations, supply security, China's industrial policies, financial regulation and individual bank's credit risk exposure.

 

Existing good practice


This research project has learned that several Chinese banks and foreign banks have been actively working to improve the proportion of sustainable soft commodities in their trade financing businesses, and, of course, all of their businesses are at an early stage. From the point of view of the bank management system, the best practice exists in two levels - the customer relationship level and the transaction level. At these levels, we can see four different types of intervention, namely 1), "know your customer" (KYC) process, 2) risk management (RM) process, 3) employee performance process, 4) capital cost intervention. The last type of intervention includes innovations such as the "sustainable shipment letter of credit", such as the banking environment initiative product. The key contributing factor to most of these best practices is the improvement of information technology and data capacity in the green finance field.


Existing challenges


Despite the good practice mentioned above, China's banks still face many challenges to make progress in "green" trade financing. These challenges are focused on four aspects: 

1) lack of a fair competition environment; 

2) lack of clear definition; 

3) lack of ownership; 

4) lack of capacity. 

Experts have put forward a number of ideas in a series of seminars aimed at addressing these challenges.



Challenge

Solution


Lack of a fair 

competition

environment

The China Banking Regulatory Commission (CBRC) and other competent authorities may be able to express their support for further action in this field. The CBRC will also clarify its expectations for banks in the "green credit guidelines".


Lack of clarity

The current work of non financial regulators in China can be integrated into the 

guidelines of the banking industry, and it is clearly defined.


Lack of ownership

rights

One or more banking organizations, such as the Chinese Banking Association, can 

bring green trade financing into the agenda. Banks can create a symbolic but ambitious goal for the new green trade flows to be financed to increase ownership. This helps 

to explain the importance of the problem to all relevant parties and to the difference 

between the competition and the competition. In addition, China's Banking 

Association and other industry associations can contribute to the "green trade finance list of China", and make an open ranking of Chinese banks' performance in 

green trade financing, so as to further increase ownership.


Lack of ability

It can organize the joint participation of commodity companies and banks to

promote learning and communication across industries to improve their ability to 

deal with the problem. The Chinese banking association can play a useful role in organizing the banking sector and cooperating with other related platforms that have already been active in China. If we can hold these forums, it will be of great benefit 

to establish a strategic cooperative relationship with international experts who have already been active in this field.