By Tian Hui, Research Institute of Finance, Development Research Center of the State Council (DRC)

No 139, 2014 (Total 4638)

Abstract:

Factoring refers to a financial instrument similar to a letter of credit or credit insurance, pledge of accounts receivable financing, which has two different definitions in China, on being a "comprehensive financial service" for banks, and the other, a "commerce and trade service" for commerce. These two definitions are the result of different regulations in banks and commerce departments even though they're basically the same.

Two definitions reflect the fact that factoring cannot operate without government intervention, but represent different regulations, resulting in serious consequences. For instance, bank factoring and commercial factoring are inconsistent in their environment and lack coordination. This can result in arbitrage risks and is bad for the healthy development of factoring.