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2020-10-19

China: blockchain will help cut costs in a chemical company

One of the largest chemical manufacturers in China has launched a new Blockchain Warehouse Receipt Platform to help the industry to combat rising operating costs and trade financing.

Increased demand for more environmental and security measures in the face of the pandemic has further increased costs in China's petrochemical trade. Small businesses have already struggled to meet the credit conditions of financial lenders, as the lack of effective risk control and difficulties in securely tracking the transaction processes for bulk commodities has led financial institutions to tighten credit conditions for wholesale financing.

The major players in China's petrochemical trade have now applied blockchain technology to eliminate weaknesses in the logistics cycle and mitigate the high financing costs and delays faced by many companies. 

China's first ever digital warehouse lien financing transaction was completed on September 27 using a system that integrates blockchain with Internet of Things technology. The transaction involved the state-owned petrochemical giant Sinochem Energy High-Tech, China Construction Bank Inner Mongolia Branch and Nanchu Management Group. The financing party is one of the largest lubricants and base oil traders in northern China, Beijing Longrunkaida PEC Products.

The system offers a solution for risks such as false warehouse receipts, false delivery documents, unclear property in the goods, repeated pledges, loss of value or collateral - all of which often lead to frequent disputes over the ownership of goods and financing of warehouse receipts.

The development and use of the new blockchain platform meets the requirements set recently by eight Chinese ministries and committees, including the People's Bank of China and the Ministry of Industry and Information Technology. 

These ministries have commissioned financial institutions and businesses to improve data exchange, digitize supply chain financial settlements and standardize supply chain inventories and warehouse receipts. All these activities are aimed at improving risk protection in supply chain financing and reducing financing difficulties, operating and capital costs for supply chain companies.