Regional Updates - Asia | FCI
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Regional Updates - Asia
FCI Regional updates asia
5 September 2022

Every June FCI publishes its Annual Review giving an overview of progress made by the world's biggest and most important factoring network. The Annual Review also presents FCI's annual figures as well as global factoring statistics. In this extract, we explore Asia's Regional Updates, presented by Mr Lin Hui, FCI's Regional Director for North East Asia and Mr Thompson Lui, FCI Regional Manager South and South East Asia.

2021 Figures

NORTH EAST ASIA
The past year has seen continuous mutation of coronaviruses. It’s still a long way for the world to go out of this pandemic. Global supply chains have become increasingly vulnerable, and the global economy is in high uncertainty. With strict control and a series of macro-control policies, China’s economy maintained its stability, achieving 8.1% GDP growth. Both exports and imports grew by 21%, totalling more than USD 6 trillion. Factoring business volumes also achieved 8.4% growth according to FCI statistics. The overall performance of the Northeast Asian market was bottoming out.

SOUTH AND SOUTH EAST ASIA
In comparison to others, this is the only region where we recorded negative growth. To put things into perspective, South and Southeast Asian factoring markets can be classified into two categories: Singapore is considered a developed market and has supported the lion’s share of international factoring volume to this SSEA region, up to almost 80%. Still, fluctuations observed in Singapore substantially impact the region, as seen in 2021. A long-time contributor and advocate to the international factoring industry and FCI adapted a different accounting practice and moved her two-factor system volume offline. This affected not only her volume but the whole region. Should this not be the case, SSEA would likely enjoy similar growth rates as her counterparts where a low double digits figure was possible. Bangladesh and India are catching up slowly and building momentum.

Legal, Regulatory and Advocacy

NORTH EAST ASIA
China’s Civil Code was formally implemented on 1 January 2021, including factoring for the first time. On the policy side, China continues to encourage and support the development of supply chain finance. Many documents and measures have been issued at the national and local government levels. One notable initiative is that the People’s Bank of China issued the Measures for the Unified Registration of Security Interests Over Movable Properties and Rights, including factoring as a type of security within unified registration. It is yet to be observed its pros and cons for the factoring business. At the same time, it is evident that financial regulatory efforts have been being strengthened to tackle the market disorder in recent years. The Chinese government aims to support the real economy and address SME financing by factoring and supply chain finance.

SOUTH AND SOUTH EAST ASIA
The most symbolic development out of all SSEA markets in 2021 is issuing the Reserve Bank of India (RBI) licenses to operate TReDS (trade and receivables discounting system). According to McKinsey Global Payments, the Supply Chain Financial potential of global trade was at USD 17 trillion, whereas international factoring volume was only EUR 2.7 trillion. The domestic factoring percentage was only 0.2% of GDP in India. I see this as a clear strategic move to facilitate the growth of enabling trade-finance products/facilities such as import/export factoring, reverse factoring, supply chain financing, and forfaiting to prepare for the massive growth of international trade ahead. It seems the South Asian market in 2021 has made key developments in stirring factoring and receivables management in the right direction right after that from Dhaka in 2020, encouraging their counterparts from ASEAN nations to follow.

Promotion and Awareness

NORTH EAST ASIA
The Greater China region was once the most active region for two-factor business. But over the past decade, trade finance in the region fell into a dilemma, which hit the two-factor business directly. While it is true that there are external challenges of trade wars and geopolitics, the more critical issues are the awareness and attitude towards two-factor business, as well as the establishment of an efficient two-factor mechanism among the banks in the region. Therefore, it’s our top priority to reperceive the value of the two-factor mechanism and return to the track of the FCI two-factor business. In September, we organised a Greater China two-factor webinar. Our former Secretary-General and his three grey-haired friends from the region joined together to share their stories and help the new generation recognise the vision and mission of FCI. We need consensus among the banks in the region.

SOUTH AND SOUTH EAST ASIA
The region witnessed an unprecedented disruption in general livelihood and economic activities in 2021. Cross-border travelling was at a complete stop, and commuting to the office became a historical practice. Even though FCI has adapted to hosting events online since 2020, we still face severe challenges in terms of bandwidth, affecting the quality and overall experiences. Apart from FCI’s regional events online that we successfully organised, FCI also joined and spoke at events arranged by our partners like International Finance Corporation (IFC) and Asia Development Bank (ADB), promoting FCIreverse and supply chain finance knowledge in emerging markets like Cambodia, Pakistan, and Vietnam.

Membership Mobilisation

NORTH EAST ASIA
By the end of 2021, there were 78 members in the region, 42 in Mainland China, 9 in Hong Kong, 20 in Taiwan, 3 in Japan, 2 in Korea, and 2 in Mongolia, respectively. We terminated four commercial factors from China as they were no longer in business or had changed their strategy. Concerned about the risks of shadow banking, the Chinese regulatory authorities have tightened the supervision of NBFI, which has had a negative impact on commercial factors. However, we believe this will benefit the industry in a long-term perspective. We place the recognition and adherence to FCI's two-factor philosophy as the fundamental principle of our regional development strategy and apply it in consolidating and growing our network in the region.

SOUTH AND SOUTH EAST ASIA
Even though SSEA faced numerous challenges, three new members joined the FCI family from the SSEA region. Many financial institutions like banks and non-bank FIs had second thoughts about joining FCI due to budget concerns and unforeseen ambiguity, thus freezing their plans to develop international factoring programs until these uncertainties fade away in 2022. Two members have decided to terminate memberships in 2021 due to organisation restructures and management changes. However, one ex-member has already re-evaluated the pluses of rejoining FCI immediately and is in the process of returning as an associate member. Overall, SSEA achieved only one net addition in terms of membership which was half of its objective of the net increase of 2 members.

Challenges

NORTH EAST ASIA
Businesses tend to localise their supply chains and take a more conservative approach to payments in international business due to Covid-19, geopolitical issues, and globalisation. It is a challenge for our industry how to adapt to this change. While traditional international trade suffers, cross-border e-commerce is proliferating. In China, many small and medium-sized exporters engaged in cross-border e-commerce sprouted. It is another challenge for us to offer appropriate financial services to this SME section. An even bigger challenge for banks in the region is how to break out of their own. A wave of transformation of the traditional trade finance and working capital loan models with the help of digitalisation and factoring-centred supply chain finance is coming. It is a disruptive reinvention that banks in the region need to be well prepared for.

SOUTH AND SOUTH EAST ASIA
Back in the 2008 financial crisis, the pricing model suddenly became irrelevant, and import factoring credit lines pricing jumped ten-fold, but this was short-lived. The impacts we experienced from Covid-19 vary from country to country. Only those who have experienced lockdowns, quarantines, and supply chain breakdowns share the pain. Many Asians were hit by the fourth and fifth covid waves in 2021, sending them into lockdown or survival mode, resulting in all non-essential business activities being halted. FCI’s 2021 SSEA activities, including planned education programs, were suspended, and budgets and resources were reformulated and reallocated to fulfil emergent needs. 2021 was the second year in which cross-border travelling was either suspended or adversely constrained by multiple factors, including the meltdown mechanism. This did not help our promotion effort or communication, for our sole connection relied on bandwidth.

Outlook 2022

NORTH EAST ASIA
The outlook for the region’s market in 2022 is not promising due to the pandemic and geopolitical reasons. However, based on the trend of supply chain localisation and regionalisation, the domestic and intra-regional markets will be the main growth drivers. In particular, the official effectiveness of RCEP brings great potential for the growth of the factoring market in the region. Secondly, import factoring, reverse factoring, and cross-border e-commerce in the Chinese market will become new engines of the region’s growth. What will be more significant in the long run is that banks in the region need to re-conceive their factoring, supply chain finance, and trade finance ecosystem to initiate a digitised reinvention in enormous internal and external challenges. FCI members will play an active role in leading this effort.

SOUTH AND SOUTH EAST ASIA
In Spring 2022, a good majority of mainlanders are still in lockdown, half of the expressways/highways are closed, and this translates to nightmarish supply chain breakdowns in China, radiating globally. Sellers can no longer give estimates to buyers’ delivery schedules. Importers or wholesalers fail to distribute to your local stores. Physical supply chains have limitations this time. We learned our lessons, so we performed everything else as “electronically” as possible. From the end of 2021, we started to see e-platforms popping up from all corners, and many predict we can only evolve electronically and efficiently. My question to you is will you ride this wave of evolution by adapting and embracing swiftly, or you fight it or ignore it till you cannot?

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