Trading with China by Letter of Credit

A warm welcome to Richard Casburn who has recently joined MJ Hayward Associates from HSBC as our new Training Partner.  He brings a wealth of experience in Trade Finance having worked in international banking for more than 30 years.

Richard provides some current thoughts on developments in the way Chinese banks handle Letters of Credit:

"One of the most significant developments relating to Export Letters of Credit over the past few years is the way that many banks in China have changed their interpretation in the way that L/Cs are handled. 

As China becomes more westernised with English being commonly spoken, many banks are adopting a much more sensible approach when they examine documents under L/C presentations.

Chinese banks historically had a reputation for scrutinising every word in every document, and in many cases rejecting documents if a word was incorrectly spelt, even by one letter. 

Clearly, in certain instances such as descriptions of goods etc, spellings must be exact. However this old practice of letter by letter scrutiny in every document has largely ceased, and also UCP 600 which was not always widely recognised in China, is now accepted and embraced by the majority of banks.

A really significant change is that some major banks such as Bank of China will, when issuing L/Cs, now be prepared to ask another bank to add its confirmation. This was almost unheard of until recently, however some of the smaller, local Chinese banks will still adhere to the old perception that it is not honourable to ask another bank to add its name to an L/C. In these cases, silent confirmations and commitments to negotiate remain relevant."