Bank of China seeks direct trade finance links with Taiwan

As Chinese and Taiwanese financial institutions look to increase cooperation, a mutual interest in lucrative cross-strait trade is creating new trade finance opportunities.

Earlier this summer, the Bank of China travelled to Taiwan on a road show promoting the Society for Worldwide Interbank Financial Telecommunication's (Swift) open account Trade Services Utility (TSU). While no cross-strait deal was reported during the trip, it signalled a step towards greater integration and simplified trade finance flows between the two countries.

"More than 50% of mainland-Taiwan trade settlement is conducted by the Bank of China," said Cheng Jun, director of global trade services in the Bank of China's corporate banking unit. "We believe that Taiwan will become more and more important in our trade finance business as mainland-Taiwan economic relations keeps moving forward."

Prior to last year's three links (mail, trade and transport)  agreement between China and Taiwan, traded goods and payments between the two countries had to be routed through Hong Kong. While the actual process of issuing a letter of credit or processing an open account transaction was the same as between China and other parts of the world, the intermediate stop added unnecessary cost and time.

Last year, trade between China and Taiwan totalled $129.2 billion, making Taiwan China's sixth largest trading partner.

The Bank of China is pushing Swift's TSU in Taiwan to facilitate the continued growth of trade between the two countries. A direct connection between two banks through the utility eliminates paper processing, which reduces transaction costs and speeds up the payment process.

The TSU is a matching engine for banks to handle open account trade transactions. The utility is capable of matching certificate and insurance documents, invoices, purchase orders and bills of lading.