OREANDA-NEWS. July 18, 2012. Lately, real economy caught massive attention from the international community again while the world ponders over this global financial crisis since 2008. In the United States where the crisis started, President Obama stressed that government support is critical in helping the private industry in his 2012 State of Union Address during the beginning of the year, more jobs should be created to maintain the momentum of US economy. As Europe plunged deeper into sovereign credits, German Chancellor Angela Merkel also stated that Europe should pay more attention on real economy and technological innovation, reported the press-centre of ICBC. 

In essence, all major economies in the world have come to a conclusion to support real economy. Real economy is a direct enabler of material wealth and a reflection of social productivity, also the foundation for material wealth and strength of a country. A developed, stable real economy is significant in different areas: job creation, people's livelihood, economic growth and stable society. Amid globalization fanfare and virtual economy in this new century, the financial crisis brings out a message that the world should go back to the bottom line - drive real economy.

Bank and Real Economy: Common Prosperity
To China's economy, "pretty good here" during the downturn owed very much to the support for real economy. Large commercial banks in China underscore the principle of "serving the real economy" and have been successful to weather this "big examination" of global financial crisis and catapult into the rank of leading world banks. Take ICBC as an example. During the early period of establishment in 1984, ICBC provided liquidity loans to industrial and commercial companies. Subsequently ICBC rolled out a host of financial services to companies and customers in different stages of growth.

Those included technologies upgrade loan, project loan, personal housing loan, personal consumer loan and trade finance. ICBC loans have supported a large batch of national key infrastructure projects, people's livelihood, technology upgrade in conventional sectors. Benefiting from ICBC loans are the home buyers, car buyers. ICBC loans make their own contribution to the robust growth of China's real economy over the past three decades. On the other side, the thriving real economy also brings abundant job opportunities and huge growth prospect to ICBC. Since shareholding restructuring and going public in 2006, ICBC's loans and total assets grow at an annual compound rate of 16.9% and 15.7% respectively. With a leading market position and high visibility on the back of the rapid growth of all businesses, ICBC becomes the world's largest listed bank by market value. The growth of ICBC is a telling example of "Financial sector goes with a Prosperous Society".

To large banks in China, serving real economy is an "old topic" but bridles with new challenges. Real economy is always changing. China is undergoing structural adjustment and economic transformation, especially during the few years since the global financial crisis broke out has contained some of the greatest economic and financial turbulence in China and overseas. It would be difficult to allocate the best financial resources if sticking to the old ways to serve the real economy, or serving the transformational shift in real economy.

In light of this, large banks in China are taking steps to change business model and growth pattern in a bid to improve the quality and level of services to real economy, and promote harmonious growth between banks and real economy. In recent years, ICBC makes continuous strides to cope with a dramatically different landscape. ICBC maintains a policy of "lending the right amount to the right recipients at the right time". To cater to the economic restructuring and industry upgrade, ICBC focuses on "four new markets" - advanced manufacturing, strategic emerging industries, modern services and cultural sector, while striking a balance between credit availability and growth. On the top of the agenda is the "three large strategic business segments" - trade finance, SME loans, personal consumer loans, with an aim to make new contribution to the prosperity of real economy.

Financial Services for Micro and Small Enterprises (MSEs)
In real economy, the most vibrant and highest potential are the vast number of small-and-medium enterprises (SMEs). As early as in 2005, ICBC was already one of the only two banks to start a pilot in providing loans to small business owners and supporting the growth of SMEs through diversified, integrated services. ICBC remains at the top of the league table in terms of providing new loans to small enterprises. For the period ending first quarter this year, ICBC has disbursed RMB 3.75 trillion in loans to SMEs, a jump of RMB 2.65 trillion from end of 2006, or nearly 2.4 times.

Total outstanding SME loans made up 64% of total outstanding corporate loans, 20 percentage points over end of 2006. ICBC released more loans to small enterprises and micro enterprises. At the end of the first quarter, 2012, total outstanding MSE loans in ICBC surpassed RMB 1 trillion. In terms of asset ratio, ICBC's corporate loans were already targeting at small and mid corporate segment. In 2011, although new loans slid RMB 65.5 billion from a year earlier, MSE loans increased RMB 92.7 billion against 2010's and RMB 239.7 billion (36%) in the year, representing 3.5 times the increase in loans during the same period and 37% of total new loans in all branches during the same period.

Being the largest commercial bank in China, ICBC leverages its solid customer base, strong financial position and extensive network to purse industry "pacesetters". ICBC supply chain finance or loans to MSEs in industry clusters have helped a large number of MSEs grow. In China, a majority of micro and small enterprises of good business, good potential are in the industry chains centered around large and mid-range enterprises, or one of the companies in the industry cluster. At the same time, these large and mid-range enterprises in the industry chains are all ICBC customers.

To address the issue of MSEs to access bank loans due to insufficient collateral or "difficult to get guarantee", ICBC provides trade finance service to small enterprises in the industry chain without the need to provide collateral/pledge, depending on the business of these key enterprises and if micro and small enterprises can get orders or invoices. ICBC Zhejiang Branch launched trade finance solution in line with the cooperation model and settlement option between automotive component companies and car makers in the industry chain. In granting trade facility to the numerous small enterprises that provide supplementary products and services to car makers and supporting their growth, considerations are given on their sales records, characteristics of car industry and actual need of borrowers.

These ICBC facility loans have provided strong support to the healthy growth of this type of MSEs. ICBC looks at the features of small enterprises in different factor markets and industry clusters and helps many of them get funded by offering different ways for them to guarantee their loans, such as, joint guarantee, guarantee pool, third-party guarantee, portfolio guarantee.

Moreover, ICBC pays special attention on the design and innovation of MSE products. More innovative loan products are offered to small enterprises to answer their need of "short-term, frequent, urgent" loans for production. For example, "Online Loan Link" is a loan targeting at small business customers, who can apply, draw or repay the loan online. MSEs welcome "Online Loan Link", which can be applied easily, used revolvingly, drawn anytime and credited into account in real-time. Since the launch of the service in 2009, ICBC has provided "Online Loan Link" loans to 32,000 small enterprises. In 2011, ICBC has disbursed over RMB 300 billion to MSEs via online. "Small Convenient Loan" is another example.

Eligible borrowers can obtain the loan in 3-5 working days without the need to provide collateral or other guarantee. Besides a good solution for MSEs to get funding, "Small Convenient Loan" helps MSEs save all the fees for collateral/guarantee. In the end, less financial burden. During the period since the launch of the service in Guangdong as a pilot in August, 2011 to end of 2011, ICBC has disbursed RMB 3.78 billion of "Small Convenient Loan" to nearly 3,200 small and micro enterprises in Guangdong, meaning around RMB 1.2 million to each enterprise on average.

Worthy of note is that, if MSE loan business reaches a certain scale, the operating cost can be under effective control backed by the integrated processing in the middle- and back-office and excellent risk control. As a result, competitive loan price can be offered to MSEs. In 2011, the average interest rate of ICBC loans to small enterprises was 7.12%. Meanwhile, ICBC also offered a full range of services to MSEs covering bill, settlement, electronic banking, bank card and financial leasing. ICBC leverages the domain expertise of ICBC Leasing, a wholly-owned subsidiary of ICBC, to provide equipment leasing service for SMEs. The purpose is to help SMEs upgrade their technologies, support them to use new technologies, new processes, new equipment for their transformation and upgrade.

Bank Transformation and Structural Adjustment
History tells us that large structural adjustment always comes after each major economic crisis. One new round of technological revolution will bring a new batch of emerging industries to drive new production, new consumer demand. Economy enters a new development cycle. Hence, an important mission of banks serving real economy is to change course and open new loan market. "Grow and Bolster Loan Book" by shifting lending practices to support the growth of emerging industries. In this regard, ICBC has carried out careful research and laid down a strategy to support "four new markets" - advanced manufacturing, strategic emerging industries, modern services and cultural sector, in a bid to open a "blue sea" of offering loans to real economy.

Given the strategic structural adjustment in China, ICBC lends more support to China's advanced manufacturing companies with an aim to push China from a "large manufacturing country" to a "strong manufacturing country". Through product innovation, service innovation, process innovation, ICBC rolls out different financial services and products in line with the characteristics of advanced manufacturing companies, helping them upgrade and their technology transformation.

On September 28, 2011, ICBC signed Strategic Partnership Agreement with four large advanced manufacturing companies (Shenyang Machine Tool, Liaoning Zhongwang, Shenyang Blower Works Group and Shenyang Yuanda Aluminum) in Beijing as one way to increase support to pacesetting companies in this industry. At the end of 2011, ICBC's total outstanding loans of RMB 1.12 trillion to manufacturing companies made up 22.43% of total corporate loans, rising nearly RMB 210 billion in the year and representing 47% of total new corporate loans. Total outstanding loans to equipment manufacturers grew 33.54% to about RMB 270 billion, far higher than the average growth of corporate loans in all domestic branches.

In providing loans to strategic emerging industries, ICBC closely monitors the new technologies, new energy and new industry. More loans are extended to companies with independent innovation, energy-saving or eco-friendly. The Bank targets at emerging green credit markets (energy savings, emission reduction, recycling economy) as stated in the national industry policy and environmental protection policy. For the period ending March, 2012, ICBC has extended loans to green companies totaling RMB 590 billion.

Meanwhile, ICBC takes cultural sector as the starting point to promote structural adjustment and own transformation. More loans are provided to cultural companies to drive the fast and healthy growth of this sector. In 2010 and 2011, ICBC has disbursed RMB 120 billion in loans to over 3,000 cultural companies. Compound growth rate of loans to cultural companies in these two years reached 31.79%, 2.21 times the average growth rate of ICBC loans.

As of end of first quarter 2012, ICBC's total outstanding loans to cultural sector stood at RMB 71.8 billion, up RMB 5.8 billion from the beginning of the year and 2.5-fold when compared to the same period last year. ICBC sits on the top of the league table in terms of both loan balance and new loans. Counting the factors into consideration such as lack of concentration in this sector, the smaller business scale of cultural companies and the "intangible" nature of cultural companies' core assets, ICBC seeks new approach and offers "uniquely tailored" service to meet the need of financial services from cultural companies.

Take television production companies as an example. Many of them are companies with "light assets", yet their downstream TV stations play a pivotal role in the supply chain, having plenty of liquidity for reliable payments. Based on this, ICBC rolls out innovative "Film & TV Link" service – account receivables collected from TV stations are sold to ICBC under account receivable factoring. Through the new solution, ICBC has provided loans for the filming of 30+ TV dramas including Borrow Gun, Black Fox.

A major issue of film production companies is their assets which "can be seen, no way to touch, no way to pledge". In view of this, ICBC adopts innovative approach to asset risk on the real core assets of creative cultural companies - management capability, professional work team. Different risk control options have been exercised. That included collective loan release, pledge of copyrights and joint guarantee by the person who actually controls. In the end, loans have been provided to Huayi Brothers Media Group for the production of four films - "Tangshan Earthquake", "Direnjie Tongtian Empire", "The Sound of Wind", and "Tracing Shadow".

Services for Chinese Companies "Going Global"
In recent years, ICBC executes the principle of "serve real economy, follow customers" to support Chinese companies spreading their wings beyond domestic borders. In May 2010, ICBC and Ministry of Commerce signed the Memorandum of Understanding on Supporting Companies "Going Global" to encourage Chinese companies "going global". At the end of 2011, ICBC has supported 58 "go global" projects of Chinese companies, lending a total of USD 12.9 billion.

Over USD 100 billion was reserved for lending to 107 "go global" projects of Chinese companies in the pipeline. More than three quarters of ICBC loans have been disbursed to top five "go global" industries - petrochemical, telecom, transportation, machinery and commercial trade. The ICBC loans have provided strong support to the export, engineering contracting, overseas investment/M&A of Chinese companies.

For Chinese companies outside China, ICBC leverages cutting-edge IT and different banking licenses of overseas branches to deliver innovative products and services to meet the need of "go global" companies. During the process, ICBC's overseas branches play a pivotal role, many of them have become the main cooperative banks used by local Chinese companies. More important, ICBC focuses on innovative services for Chinese companies in responding to their different stages of overseas expansion. During the last few years, ICBC's export credit business has become a knock-out product to support Chinese companies "going global" spreading 30+ countries in five Continents, namely, the power station project of China National Electric Equipment Corporation in Botswana's Moropule, power station projects of China National Machinery Industry Corporation in Turkey's Ayas and Silopi, Indonesia's Indramayu, Huawei's Telkomsel project in Indonesia, Starcomms project in Nigeria and Tanzania Telecommunications Company project, and telecom project of ZTE in Algeria.

In August, 2010, ICBC, Huawei and its Indonesia partner signed the first RMB export buyer's credit agreement in the world. These ICBC loans demonstrated the full support to Chinese companies "going global" in home and foreign currencies. ICBC promotes external guarantee service for "go global" Chinese companies who mainly involve in investment, mergers and acquisitions, contracting outside China or international trade. ICBC uses its good reputation in the world to support Chinese companies to open international market and expand overseas. Chinese contractors are getting more large engineering projects in railways, highways, power station as developing countries in Asia, Africa, Latin America are putting up more investment in infrastructure. ICBC provides bank guarantee for Chinese contractors (China Railway Engineering, China Railway Construction, China State Construction) undertaking projects overseas.

Innovative Financial Services for Real Economy
ICBC embraces innovation on financial services while shifting its loan portfolio to support the industry upgrade of real economy. The purpose is to improve the quality and level of services to real economy. Direct financing is one important measure for ICBC to support structural adjustment and industry upgrade. Wider range of services in bond underwriting, innovative direct financing products are some of the ways to support real economy through bond underwriting.

From 2011 to first quarter this year, ICBC has underwritten 140+ debt instruments involving short-term bonds, mid-term notes and super & short-term commercial papers to a total of more than RMB 370 billion, ranking No.1 in the domestic ranking by substantial margin. Since October, 2011, ICBC has successfully underwritten private-placement bonds to raise RMB 4.9 billion for many Beijing companies including BBMG Corporation, Low-Income Housing Construction and Investment Center, Zhongguancun Development Group) involved in the pilot of the construction of low-income housing. ICBC provided loans to many key low-income housing projects in Beijing - the affordable housing in Yanshan Cement Factory, Shijingshan District, the capped-price housing in South of Dandianxicun, Dongbaxiang, Chaoyang District, the public rental housing in South Area of Beiyuan, Chaoyang District, targeted resettlement housing in Area 5 of Olympic Village. Today, ICBC is the largest underwriting organization in China in term of underwriting low-income housing projects and providing financial support to low-income housing.

Driven by the fast growth of bond underwriting business, more and more large corporate clients raise funds directly in bond market under the assistance of ICBC. In the end, ICBC can use the limited credit supply to lend more cash to small-and-medium enterprises, improve services to real economy and promote economic restructuring. This is also a strategic measure of ICBC to ride the tide of financial disintermediation and re-orient its business model and growth pattern.

In consumer upgrade, since credit cards allow credit, ICBC encourages cardholders to actually spend if given an opportunity, driving the consumer growth in the end. In 2011, the total value of transactions using ICBC credit cards rose more than RMB 330 billion, or above 50%, from a year earlier to nearly RMB 980 billion.

The credit card loan outstanding of ICBC surged around 94% from the beginning of 2011 to more than RMB 170 billion at the end of the year. ICBC is providing more comprehensive financial services for cardholders and playing an active role to the consumer growth and economic restructuring. On top of this, ICBC steps up product innovation to launch new bank cards with more functions, more personalized design for everybody to use for retail spending. The Bank launched Easy Loan Card in 2011 to better serve the salaried customers. Using the benchmark interest rate of personal consumer loan of the same term as reference, the fee rate of installment payment by Easy Loan Card is lower than that of current credit cards available in the market.

As a result, young cardholders and low-income cardholders are more willing to use Easy Loan Card. Easy Loan Card allows cardholders to make automatic repayment through the salary A/C opened in ICBC within the installment payment period set by themselves. Salariat with a moderate but stable salary, good creditability can use Easy Loan Card for their immediate retail spending whenever. Leveraging its vast database and strong information technology, ICBC grants credit in advance, on a certain percentage of actual income, to customers who have salary account opened in ICBC. Cardholders just use the cards to pay at merchants and get the consumer loan.