Amid the pandemic, blockchain is alleviating the pressure in China’s petrochemical trade.
One of China’s largest chemical producers has launched a new Blockchain Warehouse Receipt Platform to help the industry combat the rising costs of operations and trade financing.
An increased demand for more environmental and safety measures amid the pandemic has further driven costs up in China’s petrochemical trade. Small enterprises were already struggling to meet the credit conditions of financial lenders, as a lack of effective risk control and difficulties in securely tracking transaction processes of bulk commodities have led financial institutions to tighten lending on warehouse financing.
Major players in China’s petrochemical trade have now applied blockchain technology to address weak points in the logistics cycle and alleviate the high financing costs and delays that many enterprises are faced with.
China’s first-ever digital warehouse receipt pledge financing transaction was completed on Sept. 27 using a system that integrates blockchain with Internet of Things technology. The transaction involved state-owned petrochemical giant Sinochem Energy High-Tech, China Construction Bank Inner Mongolia Branch, and Nanchu Management Group. The financing party is one of northern China’s largest traders in the lubricant and base oil industries, Beijing Longrunkaida PEC Products.
“From the application for issuance of warehouse receipts to the bank’s appropriation of the loan, it took less than one day with a cost 40% lower than that of common trade finance services in the market,” according to Sinochem.
The system offers a solution for risks such as fraudulent warehouse receipts, forged delivery documents, unclear property in goods, repeated pledges, impairment or loss of collateral — all of which frequently lead to frequent disputes on goods property and warehouse receipt finance.
Sinochem vice president Sun Liming explained how blockchain and IoT technology are being used to tackle these financial “pain points” in the petrochemical supply chain:
“The [blockchain] Platform is the first to realize strict correspondence between digital warehouse receipts and stored goods. It uses IoT technology to monitor the goods under digital warehouse receipts closely, to ensure that each warehouse receipt directly assures the existence of goods. In addition, the platform realizes swift goods delivery, receipt pledge, as well as integration of ‘four flows’ (the receipt flow, capital flow, contract flow, and goods flow).”
Liming expects that the high security of blockchain technology, which is resistant to tampering, as well as the improved traceability of data in the supply chain, will “greatly improve the industry’s credit rating.”
The development and use of the new blockchain platform addresses the requirements recently laid out by eight Chinese ministries and commissions, including the People’s Bank of China and the Ministry of Industry and Information Technology.
These ministries tasked financial institutions and enterprises with improving their data sharing, digitizing supply chain financing settlements, and standardizing supply chain inventories and warehouse receipts. All these measures aim to improve risk protections for supply chain finance and to reduce financing difficulties, operating and capital costs for supply chain firms.
A recent Cointelegraph report has delved into China’s application of blockchain technology to digitize its infrastructure and encourage secure data sharing, with the aim of increasing efficiency and establishing better credit systems across various sectors, including the IoT, supply chain management and government services.