“Supply chain finance has been developing in China for a long time, and we have done a lot of exploration and efforts. At the macro level, we have raised supply chain finance to the height of national strategy. Banks have done so much exploration. Why are we still here to talk about supply? Chain finance? What is it that hinders supply chain finance from playing its due role?” On July 24, Chen Daofu, deputy director of the Institute of Finance of the Development Research Center of the State Council, was sponsored by the Qingdao Municipal People’s Government and organized by Caijing magazine and Caijing This is said at the “2021 Qingdao China Fortune Forum” hosted by “Think Tank”.
Chen Daofu, Deputy Director, Institute of Finance, Development Research Center of the State Council
Chen Daofu pointed out that in the course of practice, three difficulties were found in supply chain finance:
First, the introduction of supply chain finance has a certain historical background. During the development process, supply chain finance is naturally connected with bank credit. Looking at supply chain finance from the perspective of bank credit, the ecological operation of the supply chain is tied to the bank’s original set of business models.
Second, we place great emphasis on entity credit. The biggest feature of supply chain finance lies not in emphasizing the entity but in ecology. How to reconstruct and broaden the credit of non-subject transactions, how to switch from bank credit to commercial credit, and from subject credit to consumer credit, is a breakthrough.
The third is that our network construction and infrastructure are still quite limited, and there is still a considerable gap between enterprises and the digitalization required by supply chain finance.
The following is a partial record of the speech:
Chen Daofu: How does finance empower the industrial chain and supply chain? From the perspective of the chain, the focus is that the cycle is the network, and it emphasizes an ecological concept, focusing on the connection between different points.
We can see that we are currently in a period of change, and chain connections and grid connections are being reconstructed. Many companies and financial institutions have opened up, refined, overlapped, and overlapped their links. What is reflected behind this chain is that when we look at the world, we no longer just look at a point, but a line and a network. Coupled with the clustering effect, in fact, more emphasis is placed on viewing the world from an ecological point of view.
For finance to intervene in this process, it means to integrate with ecology. Unfortunately, there is still a long way to go between the two. The supply chain contains two issues, one is the issue of completeness and safety, and the other is the issue of effective circulation. The financial-related parts of the supply chain have relatively high requirements for timeliness, and those with currency characteristics are generally within one year. At the same time, it is also necessary to truly integrate industry and finance.
This puts forward two requirements for China’s financial system. The first is that the products of the exchange are very standardized, but the financial needs of enterprises are ambiguous. It is necessary to think about how to combine the standardization of product supply with the non-standardization of demand; the second is to provide services. , When responding to demand, there are many services between financial and non-financial. How to enable the market to independently provide financial and non-financial services becomes the key.
Supply chain finance has been developing in China for a long time, and many explorations and efforts have been made. On the macro level, we have raised supply chain finance to the height of national strategy. Banks have done so much exploration. Why are we still talking about supply chain finance here? What is preventing supply chain finance from playing its due role?
Three interesting cognitive and practical problems can be found. First, the introduction of supply chain finance has a certain historical background. During the development process, supply chain finance is naturally connected with bank credit. When it comes to supply chain finance, it will talk about accounts receivable, when it talks about accounts receivable, it will talk about corporate credit, and finally it will be connected with bank credit. Looking at supply chain finance from the perspective of bank credit, the ecological operation of the supply chain is tied to the original business model of the bank.
Second, we place great emphasis on entity credit. The biggest feature of supply chain finance lies not in emphasizing the entity but in ecology. How to reconstruct and broaden the credit of non-subject transactions, how to switch from bank credit to commercial credit, and from subject credit to consumer credit, is a breakthrough.
In addition, when we were doing supply chain finance, we discovered that as to who is the main driver to promote supply chain finance and who will lead the integration in terms of policy, the current policy is not coordinated, and once faced with this problem, there will be insufficient motivation. Whether it is from the perspective of core enterprises or banks, to promote the development of supply chain finance, there are both motivations and obstacles.
For core companies, supply chain finance costs and risk benefits are not necessarily symmetrical. For banks, it will involve cross-regional, there will be many specific obstacles. How to make core companies and banks motivated to truly build supply chain finance?
The same is true for logistics companies, facing how to bring these subjects together. In terms of policy, there are actually no obstacles at the legal level, but in terms of laws and regulations, in the process of policy practice, there are many details that do not fully meet the requirements of the supply chain, and they need to be continuously adjusted in practice.
The third difficulty we face in practice is that our network construction and infrastructure are still quite limited. There are two very important foundations in supply chain finance. The core is to establish network-like information and be able to analyze this information. Who will build this information network to form a closed-loop data? First of all, in fact, all parties are working hard on a certain point, but there are certain shortcomings in connecting together.
In addition, there is still a considerable gap between companies and the level of digitalization required by supply chain finance. Now some companies and even factories have not achieved digitalization, and some have not yet completed digitalization at the group level, financial level, and supply and marketing level. The lack of digitization at the enterprise level makes it extremely difficult to link up supply chain finance. Because this is a basic work, there are a lot of deficiencies in the layout of the industrial chain, making the supply chain really find insufficient foundation and lack of motivation in the process of advancing the reality.
Supply chain finance has risen to such a high level in China, and all parties have also realized its importance. Next, we need to sink down and truly solve some of the actual problems in the supply chain.
Regarding the financial incentive mechanism, I think there are only three words: visible, understandable, and trustworthy. To see the subject, see its value. You have to walk into the industry to see the value that others don’t see. And to understand this value and grow with this value is the safest and best incentive mechanism.
Finally, it is necessary to design a trustworthy mechanism that can combine the interests of both parties. In addition, how to effectively respond to the seen values and needs, and to break through the implicit cognition behind self-cognition and existing policies is very important, so that we can truly introduce a restraint mechanism that suits the needs of the market.
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