Factoring has been a new trend and a useful complement of the financial service industry. Since “Notice of Launching Pilot Factoring Programs” (hereinafter referred to as “the Notice”) was issued by Ministry of Commerce in June 2012, Shanghai Pudong New Area, where pilot factoring businesses were to be launched, has become a focus of attention. Recently, Liu Xinyu, Dacheng senior partner and vice-director of the international practice at the Shanghai office worked with paralegal Ge Shu to advise his client on setting up Shanghai Tongyue Commerical Factoring Co., Ltd., a Sino-foreign factoring joint venture and the ninth officially approved such company in Shanghai.
 
Factoring is a form of financial transaction where a seller transfers its accounts receivable from goods sold or services performed to a factor in return for trade financing and receivables ledger management.
 
Starting from 2008, the two-factor export factoring business in China has surpassed any other country for four consecutive years. Last year’s international and domestic factoring business conducted by Chinese banks reached a historic height equivalent to RMB 2.24tn, or 4.7% of the GDP. While independent factoring companies dominate foreign markets, factoring in China is mainly provided by banks that prefer to serve large enterprises meeting credit rating requirements, to the exclusion of medium and small-sized sellers or exporters. Thus, the pilot factoring programs in Shanghai Pudong New Area and Tianjin Binhai New Area will do the utmost good of opening new financing channels for medium, small and micro-sized enterprises.
 
Pudong New Area estimates show that a hundred factoring companies will produce about RMB5bn to 8bn of investment. And authorities in the Area have vowed to facilitate the new endeavor. On January 15 2013, Cao Lei, director of the Area’s Committee of Commerce said, his agency was confident of breaking through shackles of the existing approval system to let innovative businesses dwell in Pudong, no matter how big the factoring business would invest. His speech was made at a conference where the Committee of Commerce held the first public reading of the “Trial Regulations on Launching Factoring Businesses in Shanghai Putong New Area”. This is no doubt good news for foreign investors concerned about foreign investment entry and exchange settlement in China.
 
Acting as the legal advisor for Tongyue, Dacheng designed corporate legal framework, business model and risk management system for the factoring company; drafted articles of association and joint venture contract; and prepared application reports for administrative approval. The application was approved unanimously first by the New Area Committee of Commerce, then by municipal and district-level Committee of Commerce, Finance Services Office, Bureau of Finance, Bureau of Industrial and Commercial Administration, as well as pre-license and foreign investment review committee composed of People’s Bank of China experts and outside experts. Dacheng attorneys’ work has gained recognition from the client.