Qianhai Mercantile Exchange (“QME”) introduced the first financing activity for the first aluminium billet standard warehouse warrant on 17 January 2020, helping to explore ways to address SMEs’ financing difficulties.

With its framework designed by Puhui under Ping An Bank Co., Ltd. (“Ping An Bank”) and Puhui’s industries group, this financing business was rolled out jointly by Ping An Bank’s Shanghai Free Trade Area branch and Ping An Trading Co., Ltd. (“Ping On Trading”) to provide professional QME participants with supply-chain financing with rights to the goods based on QME’s standard warehouse warrants.

This financing business is a major step taken by QME to innovatively achieve the positioning and development goal of “exploring a new mode to serve the real economy” set out in the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area.  As opposed to traditional bank financing business which usually imposes qualification requirements on the borrower, this financing business is more concerned about the underlying asset of the transaction, i.e., QME’s standard warehouse warrants.  With warehouse warrant financing, the threshold for access to financing is substantially lowered through various means to manage different types of risk including market risk, operational risk and liquidity risk.

The difficulty for the real economy, represented by SMEs and micro enterprises, in obtaining financing coupled with high financing costs is a major problem that hinders the macroeconomic development of Mainland China.  This is also a long-term problem faced by the commodities industry which is the basis of the real economy.  In the face of practical issues such as insufficient credit of the commodity entities, non-standardised underlying assets and complicated operations, mainstream financial institutions represented by banks have never really appeared at the scene of the commodities industry.  As a result, the commodities market with a scale of trillions of RMB is unable to obtain sufficient financing services from conventional financial institutions, therefore suffers from the persistently high financing costs.

The key to solving the above problem is to construct financial infrastructures capable of mass production of standardised assets.  The commodities industry needs to transform its mindset to get rid of the concept of “user community” and to focus on the commodities themselves rather than on the parties involved.  In this way, a large number of high-quality and secure underlying assets generated from real economic activities and with an actual trade background can be pledged to obtain financing, ultimately providing effective liquidity support for SMEs.
 

The launch of QME’s first aluminium billet standard warehouse warrant financing business signifies QME’s pioneering step in the pursuit of developing standardised asset systems.  In the capacity of an exchange and by employing technologies such as IoT, QME managed to convert the initially non-standardised OTC aluminium billet goods into standardised electronic warehouse warrant assets, laying the groundwork for banks’ supply-chain financing business based on the logic of “controlling goods” while providing a core foundation for risk control.  In the next step, QME will continue to cooperate with industry participants such as technology companies, banks, insurance companies, real-economy entities, and warehousing institutions, to further develop a standardised commodity digital asset ecosystem with the aid of technologies like blockchain, intelligent recognition and IoT, and achieve the interconnection of “capital and assets”.
 

With the original intention of “setting a foothold in spot market while serving the real economy”, QME has always been dedicated to the construction of financial infrastructures and creating an innovative trading platform and ecosystem to continuously provide customers with benchmark spot prices and effectively lower counterparty credit risk.  QME will continue to help enterprises increase their efficiency and reduce their costs through intensive operation on the platform and provide "financial" warehouse warrants for inventory financing and basis for verifying the authenticity of trade backgrounds through technology empowerment.  QME will also work closely with London Metal Exchange (LME) of the HKEX Group to achieve the connection of the Mainland and overseas markets.
 

Looking ahead, QME will keep exploring new modes to serve the real economy so as to facilitate the transformation and upgrade of the Mainland’s commodity industry, and make headway in achieving the strategic goal of setting up an RMB pricing centre for global commodities.