Trade finance in East Asia - potential responses to the shortfall

Abstract

The crisis of 2008 saw many European banks reduce their provision of trade finance in East Asia. Notwithstanding the actions of the G20 and other bodies to redress this, a substantial shortfall in trade finance facilities in the region remains. This article explores the development of this shortfall, and analyses potential responses to it.

These responses range from some much-needed further revisions to the Basle III rules, to deepening of cross-border cooperation, creating a ring-fenced liquidity pool for trade finance, encouraging co-financing among the various providers of trade finance both private and public, and establishing a regional trade finance database. In addition, the article ponders the likelihood of China’s banks beginning to take a substantial role in providing trade finance to the region. Trade finance offers China’s banks a low risk means of expanding into international business, and offers China a way to provide the sort of important service to its region that regional leaders typically seek to provide.