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China’s Tencent moves further into supply chain finance

China’s Tencent has joined the ranks of supply chain finance (SCF) suppliers and announced that it completed its first transaction under the new programme late last month.

The conglomerate is best known for operating the WeChat social media and mobile payment app, which has one billion users daily, and the QQ instant messaging service.

With other Chinese tech companies having launched competitive SCF offerings to lower the financing cost for suppliers, Tencent says that its own rates for suppliers will typically be 33% lower than the average factoring cost. The size of the programme has not yet been disclosed

“To support the development of our suppliers and establish a long-term stable procurement ecosystem, Tencent has connected to financial institutions to provide safe, efficient and low-cost SCF services,” the company announced in a statement.

According to local reports, China Merchants Bank (CMB) has been appointed as the partner transaction bank in Tencent’s SCF programme.

“Industry plus internet is a future trend. Everybody is watching the business-to-business (B2B) business,” a senior banker involved in the transaction commented. “The programme is still upgrading now. If everything goes well, there will be more exciting things coming out of this programme.”

Helping SMEs

Last November, Tencent created a new division, Tencent Financial Technology, for the launch of WeChain, its first SCF, blockchain and asset-backed securities (ABS) platform called WeChain.

At the time, China Daily quoted Aaron Cai, general business manager of Tencent Blockchain, as saying: “We want to build WeChain as an SCF service platform based on blockchain technology.

“The platform will empower medium and small-sized enterprises [SMEs], helping them to get out of the financing predicament.”

Suppliers seeking working capital upload trade documents onto WeChain. Once the documents are verified by WeChain and acknowledged core buyers, transaction banks will acquire the receivables from the suppliers, similar to a reverse factoring transaction. Bank and securities companies then package the assets into ABS products and further distribute them to investors.

The factoring + ABS model is now widely used by Chinese financial institutions and tech companies to improve corporate liquidity. In this type of fintech collaboration, banks normally act as the financial service providers while technology companies provide technological support. 

Tencent has been investing in blockchain and its treasury system in recent years. Last August, the first blockchain-based invoice was issued by a restaurant in Shenzhen province.

Via WeChat, customers are able to access a digital invoice and get reimbursed by corporate treasurers, who can also track the transactions online along with the tax authority in Shenzhen. The blockchain technology was backed by Tencent and software developer Kingdee.

In addition to  Tencent, major e-commerce companies such as Alibaba and have set up in-house finance or factoring companies as subsidiaries to fund and support thousands of SME clients, which have a large number of receivables on their balance sheets.

The receivables market is now being assessed by Chinese tech companies. According to the National Bureau of Statistics, as of the end of 2018, the total outstanding receivables of enterprise above designated size (Chinese firms with annual sales revenue over a certain amount) was 1.43 trillion yuan (US$210 billion), 8.6% up from 2017. Days sales outstanding (DSO) was 47.4 days, 0.3 days up from 2017.

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