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The world of trade finance and guarantees is a complex area. But without these instruments, international trade would come to a halt. But how does this work when multiple jurisdictions have different rules?

At ICC Austria’s Trade Finance Week in Vienna, Jyodh Bilan, editorial assistant at Trade Finance Global spoke to Jin Saibo, Attorney at Law, Beijing Jincheng Tongda & Neal Law Firm about the evolving landscape of trade finance, China’s integration of international standards and the country’s innovative transition towards digital negotiable instruments.

The strategic significance of Trade Finance Week

Jin Saibo has been a regular at ICC Austria’s Trade Finance Week since its early days in the mid-2000s. Far too often, there is a divide between financial practices between Western and Eastern markets.

However, events like this offer a somewhat rare chance to bridge this divide and allow individuals to share best practices and procedures.

Saibo said, “Understanding documentary credits, money guarantees, and standbys is essential for China to excel in international business.”

“That is why I joined ICC Austria’s events over 20 years ago, to be a participant and a speaker. I’ve been able to learn a lot about all these different subjects over the years.”

Part of the process of bridging the gap between the different markets is using standardised procedures. 

Saibo said, “If China wants to do business with companies across Europe and the Middle East, we must use International Standard Banking Practice (ISBP), UCP and the URDG.”

This is why Saibo worked with The Supreme People’s Court of the People’s Republic of China to harmonise trade rules with the rest of the world. Under China’s Independent guarantee law, if the demand guarantees are subject to URDG rules, the Chinese courts and judges will apply the URDG rules in cases.

Saibo mentioned, “The adoption of URDG and ‘other model rules’ (Article 5 of the Chinese Guarantee Law) was a strategic decision aimed at harmonising our practices with global standards.”

While the laws have been drafted to fit with international standards, the legal strategy employed is multifaceted.

The respect for the autonomy of the parties to choose their governing laws, typically international standards like the URDG and ISDGP, is a foundational principle. This alignment helps facilitate international trade involving Chinese companies by ensuring that guarantees adhere to universally recognised frameworks. However, the flexibility in the legal system goes beyond mere adherence to international norms.

Chinese courts are particularly vigilant when issues of fraud or beneficiary abuse arise. The legislation is designed not only to align with global standards but also to empower local courts to intervene decisively. 

For instance, if a beneficiary makes a fraudulent claim or abuses their rights under an independent guarantee, Chinese law provides clear legal remedies to counter such actions. This dual focus, on international compliance and local enforcement, ensures that while international standards guide the transactions, there are safeguards to protect against misuse within the international and domestic market.

With more strategic focus like this, the divide between Eastern and Western practices could be bridged sooner than later.

The digital shift in trade documentation

The United Nations Commission on International Trade Law (UNCITRAL) has developed a Model Law on Electronic Transferable Records (MLETR) which aims to enable the legal use of electronic transferable records both domestically and across borders. Recently, UNCITRAL has recommended China to adopt MLETR. 

Experts have also suggested that a draft of the MLETR be sent to the Department of Commerce in China for consideration. 

Saibo Jin said “I was invited to join a seminar in Beijing last year to deliberate on the adaptability of the MLETR in China in accordance with the regional agreements like the Asia-Pacific (APAC).” 

However, Saibo mentioned the difficulty of adopting MLETR, partially because it conflicts with the Negotiable Instruments Law which was enacted in China in 2004. 

Currently, about 95% of Chinese negotiable instruments are being transferred digitally under the Negotiable Instruments Law. Commencing the usage of digital bills of lading, warehouse receipts or commercial invoices in China under the MLETR will not only require changes to the existing Negotiable Instruments Law but will also require changes to the Chinese Maritime Law, the law of warehouse receipts (the law of storage in the Chinese Civil Code) and relevant statues made by the Chinese People’s Congress. 

According to Saibo, it is unlikely to amend all these laws to accommodate the MLETR because of the time, energy, and expertise that the process will require.

Saibo Jin said, “My recommendation to the Ministry of Commerce of China is that we need to find help from the Supreme People’s Court.” The Supreme People’s Court is in the position to enact a law or introduce an interpretation that will guide the adoption of the MLETR law on digital trade documents instead of going through the People’s Congress. As the Supreme People’s Court already have the authorisation from the People’s Congress to make laws (“Justice Interpretation”) based on the Chinese court’s legal practices from the 1980s.

Such a law (“Justice Interpretation”) should encompass issues pertaining to the use of digital bills of lading, digital commercial invoices, and digital warehouse receipts, as well as the adoption of digitalisation of trade and supply chain finance products such as letters of credit, guarantees, forfaiting, and factoring.

The Chinese Supreme People’s Court, by the effective oversight that it has over judgments in Chinese courts covering e-bills of lading and e-warehouse receipts, may feel that it is necessary to unify all the judges in China by making their judgments subject to the same set of rules. Saibo said, “This will be my suggestion to the Supreme People’s Court later”. 

The role of ICC Austria’s Trade Finance Week in shaping Chinese trade legislation

ICC Austria’s Trade Finance Week hasn’t just impacted Saibo’s personal growth within the industry, it also has tangibly impacted Chinese law. 

Saibo said, “After every event, I go back to China and reprint all the material from this event and provide it to the judges in the Supreme People’s Court, who are responsible for drafting the relative laws.”

Without events such as ICC Austria’s Trade Finance Week, the divide between markets may continue to grow, something which the industry can ill afford.

The trade finance gap is already at $2.5 trillion, and one of the reasons this has failed to shrink is the lack of coordination and harmonisation between individuals, companies and countries.

Saibo said, “We must make our laws very harmonised with the law and banking practices, not only in Europe but also all over the world.”

How do we continue to harmonise? As Saibo mentioned throughout the day, it’s about getting together at events like ICC Austria’s Trae Finance Week.