The People's Bank of China--News

Boost Trade Finance in Fulfillment of G20 Summit Commitments

The current global financial crisis and the world economic slowdown have taken a heavy toll on the global trade and trade finance. According to the World Trade Organization (WTO), global trade is expected to fall by 9 percent in 2009, the sharpest since the Second World War, and the gap in trade finance to widen from US$ 25 billion in November 2008 to US$ 100 billion. The inadequacy of trade finance will directly harm the global trade and investment, slow down the recovery of the world economy, and hinder the progress of poverty reduction and sustainable development programs. Facing these difficulties and challenges, the G20 Washington Summit in November 2008 declared that a broader policy response is needed, and efforts should be made to help emerging and developing economies gain access to finance in current difficult financial conditions, including through liquidity facilities and program support, and to encourage the World Bank and other multilateral development banks (MDBs) to use their full capacity in support of their development agenda, and that the G20 welcomes the introduction of new facilities by the World Bank in the areas of infrastructure and trade finance. President Hu Jintao also made a solemn commitment at the Summit, saying that, "as a responsible member of the international community, China will continue to take an active part in the international cooperation to keep international financial stability and promote world economic growth, support international financial organizations in increasing financing capacity in response to the changes in the international financial market and extend greater support for the developing countries influenced by the crisis. We are willing to actively participate in the trade financing plan of the World Bank International Finance Corporation (IFC)".

Since the Washington Summit, the international community has made strenuous efforts to boost trade finance at the global and regional level. China has spared no efforts to fulfill the commitments it made at the Summit, and participated in and supported trade finance through international financial institutions, multilateral development institutions and bilateral arrangements.

First, China has actively participated in the World Bank´s trade finance program. Challenged by the great impact of the financial crisis on global trade, the IFC, an arm of the World Bank Group, launched a new trade finance program, which aims to provide liquidity support to financial institutions engaged in trade finance by providing them additional credit line so as to restore the damaged trade finance channels and to fight the global economic recession triggered by the crisis. At present, after several rounds of negotiations, China has reached an agreement with the IFC on purchasing IFC´s private placement bonds to finance trade credit. China is solemnly keeping its promise with concrete actions.

Second, China has provided liquidity assistance to trade finance programs of regional multilateral development institutions. On January 12, 2009, China became a formal member of the Inter-American Development Bank (IDB) Group, with contribution of US$ 200 million, 75 million and 75 million to the Inter-American Development Bank, the Inter-American Investment Corporation and the Multilateral Investment Fund under the Group respectively, for the purpose of supporting economic development and poverty alleviation in the Latin America and the Caribbean, and creating a benign external environment for the development of trade finance in the region. . Since the accession, the PBC has actively promoted cooperation with the IDB in trade finance and infrastructure programs, and established an inter-agency cooperation and liaison mechanism for affairs related to the IDB. Initiated by the PBC, this mechanism comprises the Ministry of Commerce, the China Development Bank, the Export-Import Bank of China, the Bank of China and etc., with a view to helping Latin America and the Caribbean overcome difficulties such as shrinking trade finance, liquidity squeeze of financial institutions and insufficient funds for infrastructure. In his article published in the Times on March 29, Chinese Vice Premier Wang Qishan pointed out that since the G20 Summit in Washington, China, as a responsible country in the international community, has used this mechanism as an important component of the assistance and support it provided to some countries and regions. Moreover, the PBC has initiated a cooperation and liaison mechanism for enterprises doing business with the IDB, in order to guide and encourage Chinese financial institutions and enterprises to cooperate with the IDB in trade finance and other areas according to market-based principles. Recently, while addressing the 50th IDB Annual Meeting, PBC Governor Zhou Xiaochuan reiterated China´s willingness to act collectively with other IDB members in tackling with the ongoing crisis and promoting the economic and social development of Latin America and the Caribbean region.

Meanwhile, as a member country of the African Development Bank, the Asian Development Bank, the Caribbean Development Bank, the Development Bank for Eastern and Southern Africa Trade, the West African Development Bank and other multilateral development institutions, China has earnestly fulfilled its due obligations, providing liquidity assistance to trade finance in the relevant regions by way of replenishment, donation and etc. Up to now, China has provided over US$650 million to the aforesaid multilateral development institutions in cumulative terms, and established various bilateral and regional cooperation funds involving US$ 240 billion to support the endeavors of the regions concerned to develop their economies and improve the environment for trade finance.

Third, China has launched bilateral trade finance programs. Since the Washington Summit, at the request of some countries and regions, the PBC has singed a series of bilateral currency swap agreements with a number of central banks and monetary authorities with a view to maintaining regional economic and financial stability and facilitating bilateral trade and investment development. In December 2008, jointly pushed by the Chinese and the U.S. governments, the Export-Import Bank of China signed with its U.S. counterpart a US$ 20 billion trade finance agreement as an achievement of the 5th Sino-U.S. Strategic Economic Dialogue for the purpose of bolstering trade between the two countries and with other emerging and developing economies.

In the midst of the global economic slump, cooperation in trade finance on multilateral and bilateral levels has effectively promoted cooperation in trade and investment, and contributed to earlier recovery.