Leading Chinese chemical firm embraces the blockchain to cut costs
- Per Sinochem, the COVID-19 pandemic has increased operation and trade financing costs.
- By leveraging the blockchain and IoT, the firm claims to have cut costs by 40%.
- Sinochem’s VP claims the blockchain will boost the credit rating of China’s petrochemical sector.
Sinochem Energy High-Tech, a state-owned petrochemical giant in China, has rolled out a blockchain warehouse receipt platform. A report unveiled this news on October 16, noting that this move aims to address the rising cost of operations and trade financing. Reportedly, the surging demand for strict environmental and safety measures due to the COVID-19 pandemic has pushed the operational costs of China’s petrochemical trade up.
According to the report, the sudden increased demand for environmental and safety measures saw small enterprises struggle to meet the credit conditions set by financial lenders. This is because the lenders tightened lending on warehouse financing after the small businesses displayed ineffective risk control and failing to track transaction processes of bulk goods securely.
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To address these challenges, Sinochem Energy High-Tech, the China Construction Bank Inner Mongolia Branch, and the Nanchu Group joined hands to apply blockchain technology in the logistics cycle of the country’s petrochemical sector.
Combining IoT and Blockchain technology
Reportedly, the aforementioned firms completed the first-ever digital warehouse receipt pledge financing transaction on September 27 through a system that blends the blockchain with the Internet of Things (IoT). The financing party in this deal was Beijing Longrunkaida PEC Products, one of northern China’s most-significant traders in the lubricant and base oil sector.
Per Sinochem, the first IoT and blockchain-powered transaction took less than a day to process the application for issuance of warehouse receipts and for the bank to appropriate the loan. Additionally, the firm noted the entire process cut costs by 40% compared to a deal completed by common trade finance services in the market.
The firm went on to note that this system helps tackle a variety of risks. These include fraudulent warehouse receipts, forged delivery documents, unclear property in goods, repeated pledges, and impairment or loss of collateral. According to Sinochem, any discrepancies on the above documents lead to regular disputes on goods property and warehouse receipt finance.
Introducing traceability in China’s petrochemical sector
Explaining how they are using the blockchain and IoT to tackle financial pain points in the petrochemical supply chain, Sinochem’s Vice President, Sun Liming said,
“The [blockchain] Platform is the first to realize strict correspondence between digital warehouse receipts and stored goods. It uses IoT technology to monitor the goods under digital warehouse receipts closely, to ensure that each warehouse receipt directly assures the existence of goods. In addition, the platform realizes swift goods delivery, receipt pledge, as well as integration of ‘four flows’ (the receipt flow, capital flow, contract flow, and goods flow).”
Liming went on to state that the blockchain’s immutability and traceability will greatly improve the sector’s credit rating.