Top Chinese chemical firm uses blockchain to cut trade financing costs

One of China's largest chemical producers has launched a new Blockchain Warehouse Receipt Platform to help the industry combat the rising costs of operations and trade financing.

An increased demand for more environmental and safety measures amid the pandemic has further driven costs up in China's petrochemical trade.

Small enterprises were already struggling to meet the credit conditions of financial lenders, as a lack of effective risk control and difficulties in securely tracking transaction processes of bulk commodities have led financial institutions to tighten lending on warehouse financing.

Major players in China's petrochemical trade have now applied blockchain technology to address weak points in the logistics cycle and alleviate the high financing costs and delays that many enterprises are faced with.

China's first-ever digital warehouse receipt pledge financing transaction was completed on Sept. 27 using a system that integrates blockchain with Internet of Things technology.

"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," according to Sinochem.

The system offers a solution for risks such as fraudulent warehouse receipts, forged delivery documents, unclear property in goods, repeated pledges, impairment or loss of collateral - all of which frequently lead to frequent disputes on goods property and warehouse receipt finance.

"The [blockchain] Platform is the first to realize strict correspondence between digital warehouse receipts and stored goods. It uses IoT technology to monitor the goods under digital warehouse receipts closely, to ensure that each warehouse receipt directly assures the existence of goods. In addition, the platform realizes swift goods delivery, receipt pledge, as well as integration of 'four flows'."

These ministries tasked financial institutions and enterprises with improving their data sharing, digitizing supply chain financing settlements, and standardizing supply chain inventories and warehouse receipts.

All these measures aim to improve risk protections for supply chain finance and to reduce financing difficulties, operating and capital costs for supply chain firms.