Factoring in the North East Asia region is growing

Author: Lin Hui, FCI Regional Director North East Asia

In the midst of global uncertainly, the North East Asia region ended 2018 with moderate growth and the appearance of calm. FCI data indicates that the entire North East Asia region grew by 5% to EUR 581 billion in 2018. This represented 21% of the total world factoring volume – a level similar to 2017.

China remained the world’s largest single factoring and receivable financing market. Solid domestic demand continued to drive robust growth even as the market faced challenge from overseas. The government’s efforts to rebalance the economy fueled private consumption. Rising labor demand and wage increases also helped lift consumer spending. These shifts reflected China’s progressive transformation from an export-driven to a consumer-led economy. Data from the China Banking Association shows that China’s factoring sector mirrors this change. Over the past year, China’s international factoring volume dropped by half while domestic factoring has continued to grow. The Bank of China, once a leader in international factoring, recently combined its factoring and supply chain finance teams. The bank has refocused their factoring team on rising supply chain finance demand and is likely to pursue reverse factoring that favors domestic suppliers.

Japan remained the region’s most mature market, reaching EUR 49 billion in 2018. This marks a rebound to Japan’s 2016 level after a 30% drop in volume during 2017.

Beneath the veneer of stable, moderate growth, the North East Asia region was marred by several disruptions. Hit by some large fraud cases, we saw 17% drop in Taiwan’s total factoring volume. However, its two-factor export volume jumped by more than 94%, reflecting more banks support for the transparency of FCI's two-factor scheme. Similarly, several Hong Kong-based regional banks also were involved in a large receivable financing fraud case.

Compared with other regions, North East Asia has the most banking members in FCI. In Taiwan, for example, all factors are banks and over half of the market’s banks are members of FCI. But good banks are not automatically strong factors. During the past 30 years, banks in the region have been studying the traditional factoring industry and applying their lessons to strengthen the credit and operation side of their factoring and receivable financing business. Meanwhile, the region’s banks have also extended factoring upmarket to serve larger-scale clients, expanding the industry that was once stereotyped as a purely SME service.

Big data, Fintech, and Blockchain have become buzzwords that are spreading across the region. During the last quarter of 2018, two multi-bank blockchain trade finance platforms landed in Hong Kong and China. In Hong Kong, Etradeconnect is sponsored by the Hong Kong Monetary Authority. In China, the China Banking Association has backed the China Trade and Finance Interbank Trading Blockchain Platform. These developments are just two examples of the way that technology is changing our industry landscape in the North East Asia region. FCI is working closely with its regional members to share and support their interests and concerns in this fast-changing digital era. In this role, FCI will continue to facilitate and promote the sustainable growth of the industry.