PBOC’s Blockchain Trade Finance Platform Might Help SMEs Cut Costs to Less Than 6%
People’s Bank of China, along with several large banks and car maker BYD, is working on a blockchain-based trade finance platform in the Great Bay Area.
China’s central bank, People’s Bank of China (PBOC), officially launched a blockchain-based trade finance trial in Shenzhen, one of the largest cities in South China’s Guangdong Province. We reported on the platform last week, while local media portal 21jingji.com came on Wednesday with more details.
The system, known as the “Guangdong-Hong Kong-Macao Great Bay Area Trade Finance Blockchain Platform,” aims to solve financial difficulties for small and medium-sized enterprises (SMEs). Xu Honghui, VP of the transaction banking division of Ping An Bank, which is also involved with the project, said in a report that trade financing costs for micro- to medium-sized enterprises would be reduced to less than 6% thanks to the implementation of blockchain technology. Previously, these costs have been up to 8%.
Li Chao, an analyst at Chinese consultancy firm iResearch, told Global Times:
“China has been cracking down on activities using virtual currencies, but blockchain is a quite advanced technology which has been adopted by many countries. So China will definitely not lag behind.”
“Blockchain technology could also ensure a more efficient and safe information-sharing system, and it is expected to reduce the financing costs for micro- to medium-sized enterprises,” he added.
According to 21jingji.com, the platform is jointly promoted, coordinated and managed by the PBOC’s Digital Currency Research Institute and the Central Bank Shenzhen Central Branch. The project also involves the Shenzhen Institute of Financial Science and Technology, which is a joint venture of large financial institutions, including the Bank of China, China Construction Bank, and China Merchants Bank. In the course of about two months, Ping An Bank, Standard Chartered Bank, and vehicle and battery manufacturer BYD worked on the first phase of the project.
Li explained that it could take over two weeks to carry out a round of trade financing, while the blockchain platform can reduce this time to about 20 minutes, as shown in the project report.
However, Li said that the shift to a blockchain infrastructure comes at a price, and it might be quite expensive.
Hou Weirong, general manager of China Merchants Bank’s transaction banking department, said that in the future the trade finance blockchain platform might be connected to the government supervision and logistics data systems like Zhongdeng.com and taxation. This would allow the participants to share information much more easily and adopt a risk-based rating for SMEs.