Trade Finance Global heard from Simon Kleine, Director at East & Partners Europe, on the State of the Global Supply Chain Market, focussing on UK – China trade corridors.
It is fair to say that these are challenging times for global trade. New technology, digitisation, in trade and trade finance, the rise of FinTech, greater local content requirements, tighter compliance and regulatory requirements and a slowing global economy are putting downward pressure on volumes and values of trade and making it difficult for exporters, finance providers and insurers alike to think carefully about how their trade relations are configured.
And then there’s the politics. For the last two years, politics has disproportionately impacted trade and the institutions that support it globally. The use of trade as strategic tool for political and foreign policy influence is now established as a phenomenon dominating the discourse between countries; the rhetoric around trade relations increasingly weaponised. The World Trade Organisation is weakened and the world’s trade practitioners start to grapple with the creeping bilateralism that this environment has engendered.
Sometimes it is useful just to look at the facts of trade – it helps dial down the noise. Nowhere is this clearer than in the trade relationship between China and the UK. China’s goods exports to the UK were worth some $58bn in 2018, and UK goods exports to China around $20bn. Much of this trade is in research intensive sectors like electronics and pharmaceuticals. The services trade has blossomed and amounted to $9bn in total in 2018, a rate of growth in combined imports and exports of nearly 7%. Financial services represent nearly 7% of this: the UK will export an estimated $441.5bn in financial services to China, and China will export some $53bn.
Trade and trade finance are key. The value of the trade finance market between the two countries, including services, is around $77bn. Some $27bn of that is bank intermediated trade finance and $43bn open account trading.
Yet the landscape of trade is shifting and China and the UK alike should benefit from this transition. More trade is shifting to the services and digital space, and trade finance is being transformed through the advances in digitisation, artificial intelligence, and big data. There is a global funding gap in trade of $1.5tn for the SME community. As trade changes there are more opportunities for SMEs in this space; there are also more opportunities for FinTech businesses to help banks with speeding up and streamlining their due diligence, compliance, payments and transactions systems to help the banking community globally service this market.
Fintech and Trade
More than this, the FinTech market has shifted. Three years ago, it was thought that FinTech would disrupt the banking sector. As the sector has developed, however, its role as a disruptor has changed: increasingly FinTechs work with banks to build collaborative networks where there is space for everyone to grow and compete globally. During the year to come, new imperatives will emerge in the UK: Data as a
According to the UK’s Innovate Finance, the UK has the fastest growing FinTech market in the world. UK FinTech businesses are at the leading edge of collaboration with the UK banking sector, which itself is evolving into a powerful driver of FinTech research and development. Rather than being disintermediated, banks are enabled by the partnerships that are emerging. China’s technology sector is also growing rapidly and the scope for learning between the two nations is substantial.
Trade, technology and innovation will not be held back by protectionism or bilateralism. While there are many challenges in the current global environment for trade, many of the political challenges still remain just that – political. It is high time for trade practitioners to state the case for global trade and global innovation. With it they must stress the need for a multilateral approach to the way in which we solve the problems of inequality, climate change, financial inclusion and economic development through trade.