SAFE simplifies e-commerce settlement to boost cross-border trade
New rules can help small and medium enterprises (SMEs) to accelerate their cash conversion cycle
21 May 2020 | Derrick Hong

THE State Administration of Foreign Exchange (SAFE), China’s regulator of the foreign exchange market, issued a circular to all banks on May 20 aimed at accelerating cross-border e-commerce transactions by simplifying the process. 

The circular, which came out days ahead of the annual meeting of the 3,000-member National People’s Congress, scheduled to begin on May 22, should be a welcome relief especially for small and medium-sized enterprises (SMEs). In the past, delays in the processing of payments have burdened SMEs, putting pressure on their finances.

Under the circular, banks will be allowed to provide settlement, payment and collection services based on trade details in digital format after the completion of proper KYC (know your customer). Third-party payment companies will also be permitted to conduct settlement, payment and collection services to e-commerce platforms based on trade details in digital format.

To further improve the cash conversion cycle and accelerate collection, SME exporters will now be able to net their export sales with their expenses incurred outside of China including storage, logistics and tariff. This means that the difference between the amount of declared exporting goods and actual sales revenue received is permissible. Logistics companies and e-commerce platforms are also allowed to advance credit to their clients for their expenses incurred outside of China.

With this netting in place, companies are able to reduce the settlement volume and frequency, which will in turn save on settlement costs for the exporters.  

Individuals conducting cross-border e-commerce business are also allowed to conduct foreign exchange (FX) settlement, based on trade details in digital format. The FX settlement incurred also will not account for the annual FX settlement account for the individuals. Currently, B2C accounts for less than 20% of total trading volume of cross-border e-commerce in China.

China/US trade tensions and Covid-19 have impacted cross-border trading activity. Data from the Ministry of Commerce show that for the first quarter exports and imports shrank 6.4% year-on-year. However, cross-border e-commerce grew 34.7% in the same period.

Cross-border e-commerce has been one of the fastest growing sectors in China. With a market size of 186 billion yuan (US$26.2 billion) in 2019, the industry has seen a five-fold growth since 2015. As of the second quarter 2019, Alibaba’s Tmall and NetEase's Kaola are the two largest cross-border e-commerce platforms, accounting for around 60% of market share, according to ireseach.  

E-commerce, widely used in China, has also become more popular globally amid the Covid-19 pandemic. According to data from ACI Worldwide, online retail sales jumped 74% year-on-year in March, and by another 209% in April. 

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