HK enterprises seen looking to Shaanxi finance companies for cooperation in helping out SMEs

Once the eastern departure point of the Silk Road, and now the starting point of the China-led Belt and Road (B&R) Initiative, Xi'an - capital city of the China's central-northwestern province of Shaanxi - has been the strategic center of Chinese history.

Not on par with its richness in history and resources, Xi'an is deemed as one of the less-developed inland cities. But, local financial service companies have stepped in, funding the city's small and medium-sized enterprises (SMEs) in grasping the opportunities offered by the B&R project.

Among them is Chinlink International Holdings Ltd, which is principally engaged in providing financing solutions in Shaanxi through financing guarantees, supply chain finance and finance leasing to SMEs, and is one of some 10 Xi'an companies listed in Hong Kong.

Li Weibin, chairman and managing director of Chinlink, says Xi'an has much to offer to SMEs.

"Xi'an is home to many flagship aircraft and aviation giants, such as Xi'an Aircraft Industrial Corporation, and has been the hub of the military industry. Backed by its high-tech advantages and the local government's push for military technology to be converted for civil use over the years, I see great promise for many of the SMEs in this realm," he tells China Daily.

Li notes that SMEs, particularly startups, have long faced difficulties in obtaining bank financing as it's difficult for them to provide standard types of collateral. Tightened credit rules have also made commercial banks more stringent in lending to enterprises.

However, Li notes that the situation is improving as regulators are including financing of the real economy and SMEs into the assessment system, but the cost is still high for such startups.

"If an SME goes to a commercial bank, the rate for loans would be around 20 to 50 percent above the benchmark interest rate, reaching up to 70 percent in some regional commercial banks. So, if the benchmark rate is around 5 percent, SMEs could be burdened with a rate up to 8.5 percent and, in the private credit market, the interest rate could be as high as 50 percent."

As a long-term client with banks, Li says Chinlink can obtain loans worth billions of yuan at lower interest rates, to be lent to SMEs in need of funding.

Chinlink has a unique financial eco-system combining its property and logistics businesses. Taking their financing guarantee services as an example, Li says under the company's inventory-as-collateral risk management system, SMEs can pledge their inventory to the company as collateral, enabling it to provide guarantees to lending banks. Chinlink also offers logistics services, such as warehousing, transportation and delivery services.

Chinlink, which owns several commercial properties in Xi'an, also provides supply chain financing to its tenants. The synergies across different sectors allow the group to maximize its cross-selling opportunities.

For the year ended March 31, 2017, the group's revenue reached HK$518.8 million - up 157.7 percent from that of the previous year, which stood at HK$201.3 million. Yet, the company recorded a 99.2-percent decrease in net profit to HK$1.3 million. The company's annual report said the sharp decline was due mainly to a one-off HK$310-million acquisition it made a year earlier.

In June, Chinlink said it would acquire a controlling stake in MCM Partners - a Hong Kong-based financial services boutique which currently has a Type-1 license dealing in securities, a Type 2 dealing in future contracts and a Type-4 license for advertising in securities. The company is also applying for a Type-9 license for asset management.

Lee notes there're many licensed securities companies in Hong Kong and Chinlink is merely eyeing MCM's international expertise, which he believes can better serve his SME clients in Xi'an and across the Chinese mainland. MCM founders Rachid Bouzouba and Adrian Valenzuela are seasoned bankers with 20 years' experience in the securities and capital markets.

Through joint efforts, Li believes, Chinlink is well positioned for the B&R Initiative. Citing the launch of China (Shaanxi) Pilot Free Trade Zone (FTZ) in April, he reveals that among the country's seven newly approved FTZs, only that in Shaanxi issues permits to foreign investors to establish all-around financial service companies. Such favorable policies are a clear indication that the government is supporting Xi'an in tapping the B&R opportunities.

"Years ago when cities like Chengdu were wildly using bank's acceptance in trading, we were still using collection and cash on delivery. Many people didn't know what a bank's acceptance bill is. It took local banks years to promote the new tool. Nowadays, local businessmen are more open-minded and they accept new financial tools quickly."

evelyn@chinadailyhk.com

(HK Edition 07/07/2017 page9)