Trade Finance Can Support China’s Exports in the Year of the Tiger
With Chinese New Year landing on February 1 this year, brands have applied the same tried-and-true strategy of this past gift-giving season to orders they placed ahead of the lunar holiday: They purchased months in advance, and in greater volumes in some cases.
Companies are stocking up for good reason. Chinese factories are closing their doors and letting their employees leave a week prior to when the holiday—the “Year of the Tiger”— begins.
Factories, in turn, have moved to send out products before January 21 or risk them sitting idle for nearly a month’s time. According to Dickson Au, Regional Commercial Leader – Far East for international trade finance firm Tradewind Finance, many manufacturers have already jumped ahead in the calendar and shipped out orders in November.
The planning by retailers to avoid supply chain bottlenecks and secure inventory in anticipation of the Lunar New Year proved to be a boon for China, which accounts for one-third of global manufacturing: The country’s exports rose 22% in November, hitting a record high.
Mr. Au adds, “There has been continuing global demand for Chinese goods, which has been strong throughout the pandemic. It is possible that if the spread of the new omicron virus causes other nations to enter lockdowns again, then that will likely provide further support for China’s exports.”
With whopping shipping costs, jammed ports, and shortages in truck and warehouse workers, companies and their supply partners may have to strategize even further about their orders.
Some in China’s major sectors like apparel, seafood, and consumer electronics may consider trade finance, which includes international factoring and can be yet another tool brands use to move along their shipments and for exporters to keep up with the rise in demand. Chinese suppliers, who traditionally seek at-sight payment, can receive the majority of the invoice amount upfront from a financial intermediary. Retailers and distributors, in turn, are given longer windows to pay their bills and hence can preserve their capital.
For China’s manufacturers, the receivables-based financing also provides credit protection in the case a buyer defaults, one less worry in the supply chain chaos.
This Chinese New Year, the tiger is celebrated for its courage, a virtue many companies have had to adopt during the pandemic to survive, whether it be in adjusting their business model or taking extra precautions in the workplace. If the business sector carries forth with this spirit in 2022—in strategy and decision-making—it might just be in good shape.