China and India. Their population is growing. Their reputation is growing. Because their economy is growing. Their trade relations are strengthening. Their trade is growing. Because their political relations are improving. Not only foreign trade, their foreign investment too is growing. Hence, their economy is accelerating.

Both China and India have well developed infrastructure to support their tendency and strategy for international trade. They have well developed trade finance infrastructure that helps trade get finance and payments. They have well developed transport infrastructure to take their trade to port of shipment and port of destination. They have well developed legal infrastructure to resolve disputes in international trade. They have well developed arrangements to support trade for managing risks.

Both China and India use LC for international trade. Both use UCP for LC. Both have LC management expertise. Both have LC dispute resolution expertise. Both have technological arrangements for making their LC practice more efficient - more cost-effective.

Both China and India update their LC knowledge through foreign training intervention. Both the countries are to learn. The US-based Institute of International Banking Law and Practice (IIBLP) regularly organizes

LC specific training events.

Both China and India have national committees for LC-related ICC matters. The LC specialists of both the countries attend ICC's international forums to share and learn.

In both China and India, export financing is not only a banking practice but also a state trade promotion strategy, economic development strategy. China and India's central banks work to use the country's financial resources for the country's economic development.

China's Banking Facility for Trade Financing

Since 1978, China has carried out a series of major reforms in its banking system and invigorated the opening to the outside world. China has basically formed a new financial system regulated, controlled and supervised by the central bank, the People’s Bank of China. The new banking system has played an active role in curbing inflation and promoting economic development, comprising of many different kinds of banking organizations, rationally coordinating the division of responsibility. In 1994, the Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China and Construction Bank of China were transformed into national commercial banks; meanwhile, three policy banks were established: the China Agricultural Development Bank, National Development Bank and China Import and Export Bank. Since 1996, a number of stock commercial banks have been set up, the number of financial institutions have increased rapidly, and banking businesses have become diversified, and banking services have become an indispensable part of society. Over the past 21 years, China has steadily broadened its finance sector. A group of foreign-capital and Sino-foreign joint-venture financial organizations have been established in the special economic zones and coastal open cities as well as in major inland cities, and the right to do RMB business has been given to some foreign-invested banks. The Chinese government has decided to enlarge the regions where foreign-invested banks may establish business operation organizations from the present 23 cities and Hainan Province to all major cities. After China's accession to the WTO, foreign bank branches will gradually get the “national treatment” and will further extend their customer base and lines of business.

India's Trade with China

China uses "Made in India" in its economy to make it purposeful for its people. The main item from India that the crosses the Sino-Indian border is iron ore. India, however, is not happy with its export performance with China, saying it lacks diversification. India is taking steps to diversify its export basket. India's Commerce Secretary S. N. Menon says: I would urge that the different product exporters to take advantage of Government schemes like Market Development Assistance to visit potential markets in China so that they are better aware of the Chinese market and product requirements. He further says: It is also imperative for the exporters and business houses to set up branches or representative offices in China to showcase products and liaise with the provincial and the Central Governments in China as also with the Chinese business community to keep themselves abreast of the Chinese policies. Liaisoning with major multinational manufacturers with investment in China would help our exporters to know the import requirements and specifications for their operations in China.

Air and sea shipments are popular modes of transportation in India's trade with China. FOB is the popular INCOTERM in India's global trade. India has liberalized import trade with China, and has reduced tarrifs when China joined the Bangkok Agreement for free trade.

China's Trade with India -

Both China and India, with their billion people and awakening economy, are awfully important in the world economy. Some consider that China and India are competitors but also natural business partners. But in the author’s view, they are ideal business partners more so than competitors They have so many similarities. Both are ancient civilizations. Both have great diversity in income between the rich and the poor, the have and the have-nots. Both have a big rural population who are still living at subsistent level. Both are big countries with multiple dialects, climates, regional cuisines, and tastes. Both will keep the position of growth stars in the future. So they can easily share experience and knowledge. The two are also complementary, e.g., China's competitiveness in computer hardware and India's competitiveness in software and IT services may drive rapidly growing reciprocal trade and investment which is likely to outpace global averages in the years to come.

Now India has become China's largest trading partner in South Asia. The principal exports from China to India include raw silk, beans, sheet and paper pulp, rosin, coke, medical product, light industry product, textile product, chemical industry product, food, metal product, machinery facility, etc. The principal imports from India include iron ore sand, chrome ore, gem, steel, leather, plant oil, southern medicine, raw material for chemical industry, etc. In China, we find Indian expertise is often more applicable than that from developed western worlds. This may be why we see a lot of Indian planners who do well in China. They tend to have a better grasp of the complex market dynamics. China entrepreneurs and businesses are also very interested in selling to and sourcing from India. Haier, a Chinese giant of sales of appliances, for example, has a big presence and organization in India. There are also Indian companies investing in pharmaceutical area in China and some software enterprises setting up liaisons too. What’s more, a number of Chinese companies have enjoyed a reciprocal cooperation with Indian enterprises in the field of power. From both the macro perspective and talent perspective, India and China can benefit by working closely as partners. It is just evidence that supports a "gravity" theory of trade between any pair of countries, namely trade volumes are directly correlated to the combined size of the economies and inversely to the distance between them.

Trades between the two are based on multi-modes of payment and settlements, including remittance by T/T, L/C, and documentary collections. However, without support of specific statistics, this author can not say which mode of payment dominates others. It just depends on circumstance of specific trade and transaction. As far as the author knows, India’s bankers have a default requirement that bills of lading and commercial invoices be manually signed, and certificates of origin, packing lists, transport documents and commercial invoices are necessary documents presented for clearing customs. FOB, CFR and CIF are those frequently used trade terms in their underlying contracts and Letters of credit, and the currency of settlement is always US Dollars. And to the best of my knowledge, there are no specific clauses that merit special attentions found in my daily operation of LC matters.

The usual modes of payment in international trade, which Chinese traders may choose, can be divided into three categories as follows:

1. Payment by Telegraphic Transfer(T/T), which may include i) advance payment by T/T, ii) open account by T/T, and the mixture of i) and ii). The following examples are illuminative: when seller A and buyer B agree with payment method as advance payment by T/T in their sales contract, Seller A does not dispatch goods before receiving payment, and the Buyer B sends whole payment before goods are shipped. In this way, A usually need not obtain any trade financing, whilst B has to advance the funds too early and undertake the risk of late delivery or non-delivery of goods from A Thus, it is obviously advantageous to A, and not be easily accepted by B. On the contrary, when A and B agree about open account by T/T, A should dispatch goods before getting payment, and B may pay after dispatch of goods or often even after its sale of the goods. A may feel this mode of settlement uncomfortable and risky, as it needs arrangement for trade financing to some extent to support the manufacturing and shipment of the goods and relies entirely on B’s commercial credit. As a result of compromise, A may receive proportionate amount(may be 40%) of the purchase price to begin the manufacturing process, and then receive another proportionate amount(may be 30%) of the purchase price after faxing the transport document to B for the evidence of shipment, and finally, receive the balance some days later often after receipt of payment by B on the sale of goods. In this way, both A and B’s interests and risks balanced well. Chinese traders usually prefer the third one. However, in case they try to make a more competitive offer and hold adequate funds or maintain an enough credit line for trade financing or loan in their bank, they may choose alternative 2 mentioned above. When selecting open account trading, traders may face multi-choices to raise trade financing which will be introduced later words.
    
2. Documentary Collection, which includes D/P(documents against payment) and D/A(documents against acceptance). We may also give examples as illuminated above: Under D/P, when A ships the goods to B, A submits to its bank documents relating to the goods and their shipment, usually including bills of lading, commercial invoices, insurance policies and so on. The bank sends these to a correspondent bank in B’s country which undertakes to release the documents to B only against B’s payment. In this way, A may control the documents that are usually used to take delivery of goods until it obtains payment from B, while it may not procure bank’s payment obligation like under letters of credit. However, if B may obtain possession of the goods without the presentation of shipping documents held in its bank, the full security of D/P provides may fail to operate. Under D/A, the bank should deliver documents without any payment but merely against B’s acceptance of the bills of exchange included in the documents. In the case of such settlement, A bears similar risks involved in open account trading. Therefore, seldom do Chinese traders accept payment by D/A, unless they never concern buyers creditworthiness, or attempt to promote new transaction relationships.
    
3. Documentary Credit. The first and main consideration of choosing this settlement method is to seek safety and protection as Chinese traders always know that the letter of credit is Bank’s credit instead of merchant’s. This concept is deeply rooted in their minds. Thus when they have a deal with a new client they usually favor LC. The second consideration is to obtain financing. A Chinese exporter with enough credit line in his bank may obtain various structured trade financing products to meet their financial demands with different levels.

As far as the author knows, more and more Chinese exporters would like to choose remittance by T/T, particularly the mixed one as mentioned above, because they consider T/T is low-cost, easily-handled, prompt, and particularly well supported by some trade financing products, such as receivable discounting and factoring.

Trade financing arrangements

China’s banks are providing a variety of trade financing products and arrangements for traders in order to satisfy customers’ financial needs at diverse levels. These financial services largely facilitate China’s export and import that are accelerating China’s economy. We may list some trade financing services available in different stages of transactions:

1. Pre-shipment financing:

i) Packing Loan A pre-loading short-term financing, offered by the local bank to the exporter who has received qualified letter of credit, to support the exporter to implement the contract, namely to enable the exporter to purchase, prepare the material, produce and effect delivery as scheduled. It is the specific financing arrangement for the beneficiary of a letter of credit, who should hold enough relating credit line in the bank.

2. Post-shipment financing:

i) Export Bill Purchase A short term financing supplied by the bank against export bills(better including full set of negotiable transport documents) as the mortgage as required by the exporter after he delivers the goods. It is available both under letters of credit and documentary collections, against documents which may be discrepant. The exporter may deploy such financing to repay pre-shipment financing----packing loan. Consequently, the exporter’s credit line occupied for the previous packing loan is released, and instead, the credit line for such export bill purchase is occupied accordingly.

ii) Negotiation A similar financing to export bill purchase except that it is only against compliant documents presented by the beneficiary under negotiation letter of credit by the negotiating bank nominated in the letter of credit. Other banks other than the negotiating bank should not provide negotiation unless having obtained the issuing bank’s specific authorization.

iii) Export Discounting A short term financing provided by the bank to the

exporter, by means of buying with recourse immature usance draft accepted by the issuing bank or deferred payment undertaking made by the issuing bank under letters of credit It should be noted that this kind of financing does not require occupation of the exporter’s relating credit line. Instead, the bank will occupy the credit line of the issuing bank in its corresponding banks’ management system.

iv) Forfaiting also called bill buy-up or bill buy-out, is a kind of trade financing that the bank, as the buyer-up, purchases without recourse from the exporter the accepted usance draft so as to provide finance to the exporter. That is to say once the exporter obtains the financed fund, he will be exempt from the responsibility to repay the debt. Moreover, this kind of financing enables the exporter to transfer various risks resulted from deferred payment, such as interest-rate risk, currency risk, credit risk and political risk Same as export discounting, no exporter’s credit line needs be occupied.

v) Silent Confirmation A new-emerging kind of financing first provided by foreign banks in China, to provide without recourse financing against compliant documents to the beneficiary of letter of credit by the bank which is not the nominated confirming bank under a confirmed credit, or even under an unconfirmed credit. The bank providing silent confirmation usually require the exporter to sign an assignment agreement with it, standing in the exporter’s shoes as an assignee for claiming its rights under the credit. Under silent confirmation, the issuing bank’s credit line should be occupied by the bank, and usually, the exporter’s credit line need not be occupied, but his creditworthiness may be considered generally.

vi) Export Two-Factor Factoring The export may assign his export receivables under D/A or O/A(Open Account) to its bank, and the bank (export factor) together with its foreign partners(import factors) will provide you with trade financing arrangement, bad debt protection, sales ledger maintenance and credit management and collection. Although the exporter’s credit line is not required to be occupied, the export’s client, namely the import should establish credit line in the import factors. One thing merits attention. The financing provided by the export factor is without recourse unless there are disputes on the quality of goods under the sales contract.

vii) Export Invoice Discounting Similar to export two-factor factoring financing except that export factor occupies the exporter’s credit line to provide financing as the assignee of the receivable under the sales contract by signing an assignment agreement with the exporter.

viii) Financing under Export Credit Insurance. This kind of financing is provided by the bank to the exporter who has arranged export credit insurance for his transaction. Less and even no credit line of the exporter will be occupied as the bank may rely upon the cover of the export credit insurance.

For the Importer, China’s banks may usually provide Import Bill Advance, a kind of short-term finance offered by the bank to the importer according to his demand upon receiving the bills under the letter of credit and the import collection items. The financing period is always matched with the durance of resale of imported goods as the received payment is the main source to pay off of the bill advance.