Chinese petrochemical industry launches blockchain warehouse receipt financing trade

Chinese petrochemical industry launches blockchain warehouse receipt financing trade

On September 27, China’s petrochemical industry saw its first digital warehouse receipt pledge financing transaction that integrates blockchain and Internet of Things (IoT) technology successfully implemented in China, providing new solutions for small and medium-sized petrochemical enterprises perplexed by overly expensive and slow financing.

This transaction has involved China’s Sinochem Energy High-Tech Co., Ltd., China Construction Bank Inner Mongolia Branch, and Nanchu Management Group Co., Ltd. The financing party, Beijing Longrunkaida PEC Products Co., Ltd., is one of the largest traders in lubricant and base oil industries in northern China in terms of sales volume. From the application for issuance of warehouse receipts to the bank’s appropriation of the loan, it took less than one day with a cost 40% lower than that of common trade finance services in the market.

Ma Xiaohui, Chief Financial Officer of Beijing Longrunkaida, introduced the process of this financing deal, “Through Sinochem Energy High-Tech’s ‘(Blockchain) Digital Warehouse Receipt Platform’, we applied to Nanchu Management Group for the issuance of warehouse receipts with our stored base oil. With the receipts, we submitted an online pledge application to China Construction Bank and received the loan in the afternoon.”

Why financing is difficult and expensive for petrochemical SMEs

Presently, the continuous spread of global Covid-19 pandemic and the safety and environmental management upgrade are driving the operating costs of the entire industry up. Petrochemical companies are facing increasing financial pressures every day. However, for a long time, the traditional credit risk control system emphasizes on “reviewing the credit of the financing entity but not the goods”, making it difficult for “small enterprises with high value of movable assets” to meet the credit granting conditions of financial institutions.

On one hand, it is difficult for financial institutions to track the transaction process of bulk commodities due to the lack of effective risk control measures, especially those of “controlling goods” which could lead to frequent risk issues like false warehouse receipts, unclear property in goods, repeated pledges, impairment or loss of collateral. Financial institutions have been affected so badly to tighten lending on warehouse financing.

On the other hand, since warehousing companies often fail to get updates on changes in goods property and pledge rights, disputes on goods property and warehouse receipt finance become commonplace. Unscrupulous enterprises would forge seals and issue false inventory certificates, delivery documents, amongst others. After being duped, the deceived company often sues the warehousing company as well, who hence have little choice but to quit issuing warehouse receipts and related business with financial supervision, but focus solely on warehousing business with limited income.

Blockchain digital warehouse receipts are a panacea for financing problems

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