Alexander Anichkin, KKMP Partner, opened the event, introducing the speakers: Chuck Peng, Head of KKMP China Desk, and Ray Bu, a Qualified Foreign Lawyer at Fangda Partners. Alexander emphasized the strategic importance of the KKMP and Fangda Partners collaboration.

Fangda Partners is a “Red Circle” law firm, consistently ranking at the top of Chambers and Partners’ rankings for “exceptional quality of lawyers” and “global perspectives”, possessing unparalleled expertise in the legal regulation of the PRC and Hong Kong, making it a critically important partner for conducting complex cross-border transactions.

During the presentation, the role of SCF in the Chinese economy and its opportunities for Sino-Russian trade were discussed.

The fundamental concept for SCF in China is a co-called Digitalized Receivable (D.R.), which is an instrument different from a commercial paper and which is not regulated by the Negotiable Instruments Law of China. D.R. is an electronic record of debt based on genuine trade relationships, governed by contract law under the PRC Civil Code. SCF’s role is to optimize working capital by leveraging large corporations’ credit to provide affordable financing to smaller suppliers. In the classic SCF model, the enterprise issues a D.R. – an electronic record of the buyer’s debt to the supplier. This D.R. serves as the basis for financing. The supplier sells this D.R. to a financial institution at a discount, and on a predetermined date, the buyer "redeems" it from the institution at its full value. This allows the buyer to maintain agreed-upon payment terms, while the seller receives funds almost immediately, increasing the liquidity.

Differences between commercial paper and D.R.:

• Transferability: Commercial paper uses endorsement; D.R. relies on debt transfer, allowing flexible splitting and multi-level transfers.
  

• Recoursability: Commercial paper is recoursable; D.R. is non-recoursable, depending on the core enterprise’s credit.
  

• Platform: Commercial paper operates on the centralized Electronic Commercial Draft System (ECDS), while D.R. uses private platforms and seldom and transact between different platforms.
  

• Function: D.R. streamlines cash flow within a core enterprise’s supply chain, especially for multi-tier supplier financing.

D.R. Transaction Models in China:

• Settlement Between Suppliers: Upstream and downstream suppliers sign a Debt/Receivable Transfer Agreement to offset mutual payment obligations, simplifying transactions without cash.

• D.R. Bartering: Parties settle trade with D.R. instead of cash, with the D.R. remaining valid until maturity.
  

• Debt Reconstruction: A tripartite agreement restructures debts, making a subsequent party the creditor of the core enterprise, streamlining the process.
  

• Payment Guarantee: D.R. serves as a pledge to extend payment terms without altering contractual duties, with the subsequent party retaining claims if the core enterprise defaults.

Benefits for Russian companies:

• Favorable interest rate differential: Russia’s key interest rate is 20%, while China’s basic lending rates are 3.0% for 1 year and 3.5% for 3 years.
  

• Given sanctions and SWIFT restrictions, D.R. provide an alternative mechanism for safe and efficient international payments.
  

• D.R. are electronic documents that are easily tracked and managed, increasing transparency and efficiency in trading operations.