English Press Coverage

Investing in Asia

Interview with Lionel Taylor, China Export Finance

How does the Chinese factoring market differ from that in Europe and North America?

The Chinese market is still very young and has not reached the same level of financial maturity achieved by most European and North American markets. In China, factoring remains a relatively new concept, with those offering receivables finance entering a market in which perceptions and reputation are all important.

Loss of face is a key business concern for those Chinese companies considering using factoring services. Few Chinese firms want it to be seen that they require working capital and to do so may be regarded as a sign of business weakness. In building our business we have invested much time and effort in developing a strong level of trust in the marketplace and by employing experienced staff who are local to the main trading provinces we serve. We have been able to develop strong open relationships with Chinese sellers.

An export culture permeates all business in China, and one of the key services a factor can offer is to act as a bridge between the Chinese seller and their import partners. CEF for example plays a major role in assisting the Chinese sellers with support and brings an understanding of the business culture in the West to the table. Our teams also spend time ensuring they understand the trade documentation needs of their buyers.

It is not surprising therefore that Chinese companies particularly focus upon the non-recourse nature of factoring.

What specific issues and challenges do factors face when looking to establish operations in Asia?

The key challenge, without a doubt, is that of regulation. Factoring falls under the umbrella of banking and foreign exchange regulation. Such a licence to operate is very difficult to obtain, and regulation remains a significant barrier to entry.

The Chinese government has become increasingly proactive in encouraging the use and development of domestic factoring amongst its drive to encourage more liquidity in the SME sector, but again this has been through domestic banking channels.

Also, business culture as previously mentioned is a major consideration.

Building up a solid reputation is a pre-requisite to doing business. There are significant limits to trust in China and clients will only cooperate with those banks/financiers that they have previously heard of or who come well recommended. This search for trust has not been helped by the recent withdrawal of a number of major foreign banks, many of whom have left China to lick their wounds and concentrate on their home markets.

We have had to work hard to establish our reputation; it has taken us five years to gain a solid foothold. Trust is more difficult to acquire here than in the West, but once you have acquired that trust, clients are far more likely to remain loyal.

What attracts multinational factors to the Asian market?

China is a largely untapped market. Unlike in Western markets, the offering is still in its infancy and offers significant potential to those willing to invest time and effort. Having said that, significant barriers (as previously stated) still remain for those international factors that might be looking to enter the market. Those with strong connections within China will have a much better chance of succeeding.

Do multinational factors inevitably find themselves involved in the international offering, or can they look to develop into the domestic market?

Foreign factors stand a much better chance of success within the international field, than looking to penetrate the domestic market. Chinese banks are driving the development domestically and the growth and make-up of the industry is tightly controlled through Banking and Foreign Exchange regulations.

Local expertise versus international experience – how to balance and get the most out of both approaches?

When we entered the Chinese market we invested heavily in local expertise. It is essential to have experience of the market within which you work, and we have been fortunate that many of our local staff also have significant international experience having worked or studied abroad. International experience and skills can be important in any market, but in China, without local knowledge you will have no chance of developing your offering.

Is the Chinese government supporting the factoring offering and how can factors work to strengthen their position within the region?

The Chinese government is very much focused upon protecting the country’s economic recovery and has taken active steps to ensure that there is sufficient liquidity in the Chinese market. Banks have been encouraged to continue financing SMEs. Factoring is one of a number of financing tools that has showed up on the central government radar, and at local government level there is active support for factoring.

Factors need to work towards wider acceptance of the product offering. In the West, proof of financial facilities can often be cited as a strength as a bank/financier believes that the business is worth supporting. However in China it can be perceived as a sign of financial weakness that financing support is required. In many instances therefore, the non recourse option that factoring can offer is in many ways more highly sought after than the finance itself.

Does Asia face a similar learning curve concerning the factoring offering to that experienced in more developed markets?

Factoring in China should grow rapidly over the next few years, outstripping growth in the more mature markets. An obvious comparison would be with developments in Eastern Europe, which has seen marked growth in recent years. China will also benefit from the bank of knowledge acquired in developing the more mature factoring markets of the West. How the industry develops further will however be largely dependent upon the large, local banks. If they want to push factoring, then development will be rapid.

Also in China, factoring is very much associated with trade. As Western buyers have increasingly moved further towards open account terms and away from Letters of Credit, factoring can be cited as one of the tools that mitigate the cash flow effects and greater risk of the move to open account for the Chinese seller. On the other hand we are also seeing a greater demand from the large Western companies who are looking to use China Export Finance to support key Chinese suppliers through the economic slump.

China is expected to emerge from the present crisis earlier than Europe. What are expectations for the length and depth of the crisis in the region?

Despite the downturn, the Chinese economy continues to grow, with GDP growth this year forecast to be between 6-8%. One of the key reasons for this has been that despite the shocks to the international economic system, China’s domestic market is still well stimulated, increasingly wealthy and growing. This has helped to reduce the impact of the global recession and left the economy more buoyant than it would otherwise be. However, international linkage has caused increased unemployment within those sectors that have not adapted to serve domestic demand.

There are some early, positive signs but I believe that it is still too early to talk about a recovery. We will see how all shapes up for the second half of the year with the start of Christmas ordering. I do believe that it will be a tough autumn and winter for the global economy, but I am hopeful that we will start to see a more positive outlook in 2010.

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