October 20th, Tianjin Precious Metals Exchange (TPME) signed strategic cooperation agreement with other related builders of Shanghai FTZ bulk commodity cross-border financing service platform. All parties will conduct cooperation in the warehouse system interconnection, warehouse receipt management and value-added services, cross-border commodity trade payment and financing, etc., which was the first cooperation between China (Shanghai) Pilot Free Trade Zone (Shanghai FTZ) and China (Tianjin) Pilot Free Trade Zone (TJFTZ) in bulk commodity trade finance and also a sign of synergistic effect of China’s free trade reform.
At the beginning of October, the bulk commodity cross-border financial service platform was officially launched. This platform, jointly built by Free Trade Bulk Commodity (Shanghai) Information Service Co., Ltd., Value Pay Financial Information Service (Shanghai) Co., Ltd., and Mastercard, is one revolutionary payment ecosystem, which is one key initiative to build integrated, fully digital trade service platform inside the Shanghai FTZ, and at which has attracted both domestic and overseas banks including the DBS Bank, CIMB Bank and Shanghai Bank, etc. to carry out pilot projects.
Bulk commodity is closely connected with finance, and warehouse receipt plays a fundamental role in bulk commodity trade finance. Shanghai is China’s biggest copper import port, according to the statistics of the early July, the inventory of copper, aluminum and nickel in Shanghai FTZ were approximately 600,000 tons, 200,000 tons, and 100,000 tons respectively, with the inventory of copper accounting for approximately 57.39 percent of global copper inventory. According to the plan, Shanghai FTZ will also build international trade platforms for nonferrous metals, ferrous metals, precious metals, mineral products, agricultural products, energy and chemical products, etc. to conduct online and offline bulk commodity spot transactions.
Thanks to the “Golden Decade” of bulk commodity, the domestic bulk commodity trade has been advancing by leaps and bounds, but also accompanied by quite a few negative events caused by imperfect risk control system. Among which, the repeated pledge and trade of warehouse receipt is one prominent risk point. The so-called warehouse receipt pledge refers to the business that enterprises deposit their goods of full ownership at the warehouse companies, and then the warehouse companies will issue warehouse receipt certificates, and which will be delivered to banks by the aforesaid enterprises to apply for loans.
According to the insiders’ introduction, at present, the warehouse receipt credit of Chinese bonded warehouses inside the Shanghai FTZ is unable to meet the risk control requirements, as a result of which, few Chinese bonded warehouses prefer to issue inventory certificate instead of warehouse receipt, that is, to realize trade flows by transferring ownership of goods. While foreign warehouses like C. Steinweg Group, and Access World, etc. are capable of issuing warehouse receipts for goods owners with their high credit advantage so as to provide convenience in trade flows and financing, and as a result of which, the foreign warehouses undertake over 95 percent of the total copper inventory in Shanghai port.
In order to eliminate the disadvantages, the Shanghai FTZ bulk commodity cross-border financial service platform was launched. Relying on its whole process systematic control on warehousing business, this platform provides standardized and transparent credit enhancement services to ensure the truthfulness, efficiency and security of electronic warehouse receipts with the aim at forming China’s high credit electronic warehouse receipt system and advancing the link-up of Chinese warehouse resources with Chinese-foreign financial institutes. The business that based on the real trade including electronic warehouse receipt cross-border trade transactions, cross-border financing, etc. will provide high efficient and convenient financing and trade channels for bulk commodity trading, so as to advance the prosperity of Shanghai FTZ bulk commodity trading with high liquidity.
The signing between Tianjin Precious Metals Exchange (TPME) and Shanghai FTZ bulk commodity cross-border financial platform means China’s bulk commodity trade finance will not only be available in Shanghai. The vice-president of TPME, Liu Yu, expressed that, this cooperation was the beginning of TPME’s establishment of its own warehouse credit system step by step, and it was of great significance to enhance TPME’s capability to serve the real economy through linking up the TPME’s spot warehouse resources with financial services by relying on the third party credit enhancement services of Shanghai FTZ bulk commodity cross-border financial service platform and Value Pay’s international financial service experiences.
It is said that, since the going online of TPME’s spot listing mode from this June, it has developed nearly one hundred spot goods members and industrial customers with the expectation to realize the delivery of precious metals over one thousand tons, nonferrous metals nearly ten-thousand tons to the end of this year, and initially form a multifunctional, integrated spot and derivatives transaction platform with spot transaction, risk management and financing services.