Chinese banks requested for the creation of a financial intermediary that would
assume the risk posed from lack of negotiability of railway consignment notes. In
response, the local government in Chongqing established CLFS that would support
traders operating from the Chongqing PFTZ, using a tripartite contractual arrangement,
46 provide guarantee to the banks. Such guarantee would be conditional upon
traders surrendering control of the goods to CLFS and exhibiting through proper
documentation the following:
a. the trade transaction is real and there is a genuine requirement for such transaction
to happen;
b. the trader has capacity for carrying out such a transaction;
c. the trader has prior experience in conducting such a transaction;
d. the trader does not have any adverse credit history;
e. the trader does not have any court proceedings against her/him;
f. the trader does not have any non-planned expansion and investment;
g. the trader operates regularly; and
h. the trader has deposited 20% of the transaction sum with CLFS.
47
The above requirements laid down by CLFS seem reasonable to reduce risk of
repayment to the banks but they also increase the cost of accessing trade finance for
the importers. It would only be reasonable that laws are created with a vision that
eventually importers would be able to easily move to other forms of trade finance
that are cheaper than letters of credit.
4 Consideration of Different Forms of Trade Finance
in the CLFS Proposal
Generally speaking, the request from car traders in the Chongqing PFTZ may be
viewed as a request for facilitating international trade finance solutions in railway
corridors where goods cross several jurisdictions over several weeks during the
journey from Europe to China. Before one deliberates on whether the solution
proposed by CLFS would be acceptable to the international transport community,
it is imperative to understand the categories of international trade finance and
emerging trends. Such understanding may present an opportunity before
policymakers to determine which strand of lawmaking should be prioritized, transport law or e-commerce law, to facilitate traders with better access to finance.
46 As mentioned in the introduction of this chapter, in June 2018, a tripartite contractual arrangement
was created between Chinese railway carriers, importers and banks to use a negotiable railway bill
that secured the letter of credit for pilot shipment of cars from Germany to China.
47 The above list is not exhaustive. These conditions were mentioned during the interview referred to
in note 8 above.
Maritime Rules for Rail Carriage: China’s Initiative to. . .
51
assume the risk posed from lack of negotiability of railway consignment notes. In
response, the local government in Chongqing established CLFS that would support
traders operating from the Chongqing PFTZ, using a tripartite contractual arrangement,
46 provide guarantee to the banks. Such guarantee would be conditional upon
traders surrendering control of the goods to CLFS and exhibiting through proper
documentation the following:
a. the trade transaction is real and there is a genuine requirement for such transaction
to happen;
b. the trader has capacity for carrying out such a transaction;
c. the trader has prior experience in conducting such a transaction;
d. the trader does not have any adverse credit history;
e. the trader does not have any court proceedings against her/him;
f. the trader does not have any non-planned expansion and investment;
g. the trader operates regularly; and
h. the trader has deposited 20% of the transaction sum with CLFS.
47
The above requirements laid down by CLFS seem reasonable to reduce risk of
repayment to the banks but they also increase the cost of accessing trade finance for
the importers. It would only be reasonable that laws are created with a vision that
eventually importers would be able to easily move to other forms of trade finance
that are cheaper than letters of credit.
4 Consideration of Different Forms of Trade Finance
in the CLFS Proposal
Generally speaking, the request from car traders in the Chongqing PFTZ may be
viewed as a request for facilitating international trade finance solutions in railway
corridors where goods cross several jurisdictions over several weeks during the
journey from Europe to China. Before one deliberates on whether the solution
proposed by CLFS would be acceptable to the international transport community,
it is imperative to understand the categories of international trade finance and
emerging trends. Such understanding may present an opportunity before
policymakers to determine which strand of lawmaking should be prioritized, transport law or e-commerce law, to facilitate traders with better access to finance.
46 As mentioned in the introduction of this chapter, in June 2018, a tripartite contractual arrangement
was created between Chinese railway carriers, importers and banks to use a negotiable railway bill
that secured the letter of credit for pilot shipment of cars from Germany to China.
47 The above list is not exhaustive. These conditions were mentioned during the interview referred to
in note 8 above.
Maritime Rules for Rail Carriage: China’s Initiative to. . .
51