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PBOC Promotes Electronic Drafts and Hints at Clearing House Going Online in November

The People’s Bank of China (PBOC) recently issued the Circular on Regulating and Promoting the Development of Electronic Commercial Draft Business (Yin Fa No. 224 [2016]). Under the new rules, companies are no longer required to submit to financial institutions contracts, invoices and other documents when applying for launch of electronic commercial draft discounting business.

According to this Circular, all commercial drafts with a value of RMB3 million or above must be issued through the electronic commercial draft system with effect from 1 January 2017. Starting from 1 January 2018, commercial drafts with a value of RMB1 million or above must, in principle, be issued by the electronic commercial draft system. This compulsory measure by the central bank to raise the percentage of electronic draft business will inadvertently spell “doom” for paper drafts.

Meanwhile, preparation is underway for the establishment of a PBOC-led clearing house. According to a source from the product innovation department of the clearing centre of a major state-owned bank that took part in the preparation work, the department held a series of meetings on this matter in August and September and the clearing house will likely go online in November.

A business insider pointed out that the complete opening of electronic draft acceptance business and the requirement that the authenticity of direct discount transactions be verified are the gist of the Circular.  

The Circular says: “When e-commerce enterprises apply for launch of electronic draft acceptance business, financial institutions may carry out online verification of the authenticity of transactions and the creditor-debtor relations of the electronic commercial drafts by examining the electronic orders or electronic invoices. For enterprises that apply for launch of electronic commercial draft discount business, there is no need to submit contracts, invoices and other documents to financial institutions.”

There is no such “waiver” for paper bills in acceptance business at present. An industry source noted that this waiver is as good as requiring no endorsement of original invoices in electronic draft acceptance business. Does the client have other obligations after his business has passed online verification as mentioned above, and does the bank still have the obligation to ask this client to submit the original invoices for endorsement before a stated time after quick verification? These are matters for further study by the central bank.

Several major cases of bill frauds broke out in 2016 and problems were found in the transaction and circulation of both paper and electronic bills. The replacement of paper bills with electronic bills is the way forward from the angle of oversight.

Content provided by Picture: HKTDC Research
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