Chinese Supply Chain Finance Market is Projected to Reach $244 Billion in 2020

Date: 2015-09-22

Supply-chain finance refers to the set of solutions available for financing specific goods and/or products as they move from origin to destination along the supply chain. It is related to a quickly growing use of a battery of technologies and financial business practices that allow for discounting of Accounts Receivable and financing of companies’ confirmed Accounts Payable.

Supply chain finance in the United States have provided valuable window for observation for companies, and become important revenue for the core corporations, such as UPS and GE, their supply chain finance account to respectively 17% and 30% of total their incoming. Common prospect from insiders show the Chinese supply chain finance will be better and more prosperous. Currently, Chinese have become the largest supply chain finance market in the world, and it is estimated to reach $244 billion in 2020.

Financing was a main difficulty among the middle and small size companies in China, especially at the time of economic reform. At this case, obviously the annualized 8%-20% funding cost was a blind spot for conventional financial service, and that’s the prime battleground of financial innovation. The biggest innovation of supply chain finance is providing funding at financing rate between 8%-20%, which open a door for the middle and small size companies to financing in China. Theoretically, the ideal financing rate for the middle and small size companies is between 6%-8%, however, from a view of risk cost, the banks are more willing to lend money to the large size companies rather than take more risk over the middle and small size companies.

As the date reveals, China has over 50 million companies in last quarter of 2015, 99% of companies were middle and small size, which contributed 65% GDP. In 2014, the domestic financing was amounted to $270 billion, if those middle and small size companies received the financing that matched to their contribution to GDP, and then the potential financing demand would exceed $162 billion. 

The study revealed the growth rate of supply chain finance was between 10%-20% in developed countries in 2014, and had a growth of 20%-25% in China, India and other emerging economic entities. Chinese supply chain finance is assumed at $195 billion in 2015, and will reached $244 billion at 5% growth rate in 2020.

Growth expectation for supply chain finance in China

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