1 Winter Has Arrived: The Fire and Ice of the Private Economy In an interview on October 19, Vice Premier Liu He stated that China's private economy contributes over 50% of tax revenue, over 60% of GDP, over 70% of technological innovation, over 80% of urban employment, and over 90% of new jobs and new enterprises. "Without the development of private enterprises, there can be no stable development of the entire economy; without a high-quality private enterprise system, there can be no modern industrial system; supporting the development of private enterprises is supporting the development of the entire national economy." However, according to the Small and Medium Enterprise Development Index for the third quarter of 2018 released by the China Association of Small and Medium Enterprises, the survival environment for SMEs in the fourth quarter is expected to remain grim. During the economic downturn, financing difficulties for SMEs, especially private enterprises, have become increasingly severe. Due to high asset liquidity and a general lack of collateral, these enterprises face difficulties obtaining bank loans. Some even encounter banks' "withdrawal, pressure, or suspension of loans," forcing them to resort to private lending, whose exorbitant interest rates often lead to cash flow problems and bankruptcy. In response to the imbalanced lending to private enterprises, Guo Shuqing, Chairman of the China Banking and Insurance Regulatory Commission, proposed the "1-2-5" target : in new corporate loans, large banks should lend no less than one-third to private enterprises, small and medium banks no less than two-thirds, and within three years, the proportion of bank loans to private enterprises in new corporate loans should be no less than 50%. Under this lending ratio indicator, the supply chain finance model, where banks lend through state-owned enterprises as channels to buffer credit risks, can alleviate banking business pressure while reducing systemic risks. For SMEs, it can also ease the pressure of seeking loans and promote the independent growth of cells outside the core enterprise circle. The current supply chain finance is an industry full of magic, chaos, gods and demons, cultivation and martyrdom, alchemy for wealth, awaiting judgment, and infinite unknowns. Before weighing it, let us explain one by one. 2 Supply Chain Finance: Alchemy Guessed at the Beginning? The earliest definition of supply chain finance was proposed by Timme, S.G. and C. Williams-Timme in a survey report titled "The Financial-SCM Connection," which described it as new business that assists in achieving supply chain goals by inducing supply chain participants to cooperate with external financial institutions. As research deepened, foreign scholars gradually shifted from exploring surface-level elements and processes of the supply chain to exploring capital liquidity. Randall and Farris proposed that supply chain finance should be the provision of capital cooperation between upstream and downstream to reduce average costs and improve efficiency. Wuttke proposed that supply chain finance should enable real-time monitoring and control of cash flow to better provide services such as advance payment, thereby reducing supplier costs. In the United States, supply chain finance emerged in the late 19th century. The first stage was dominated by commercial banks, but information asymmetry prevented banks from controlling corporate risks, and enterprises could not freely choose banks, leaving this stage incomplete. The second stage was supply chain finance led by core enterprises, including models such as enterprise group cooperation and logistics enterprise leadership. A typical case is UPS, which, as a logistics enterprise, discovered that retailer Walmart would require suppliers in Southeast Asia to pay full amounts in advance, with settlement only after 30-90 days upon arrival. The long payment terms and high advance payments prevented small suppliers from entering the market. UPS, leveraging its transaction information from logistics services and its massive capital base, became an intermediary settlement provider, offering logistics, loans, and settlement services to Walmart and suppliers. (Source: "Analysis of Three Typical Models of International Supply Chain Finance," Xie Shiqing / He Bin) In the third stage, the United States focused more on the operation and maintenance of electronic information technology to simplify and optimize processes. In China, supply chain finance development began in 1999 when Shenzhen Development Bank ventured into goods pledge credit business. The systematic exploration of trade finance business truly began with the commercial acceptance bill discounting service pioneered by the Guangzhou branch. The bank established a specialized department for bill business, granting certain quotas to large, high-credit enterprises, allowing them to pay suppliers through commercial acceptance bills. The bank provided discounting services to bill holders (i.e., suppliers) at agreed rates within the quota. By April 2000, the Guangzhou branch had discounted bills worth 6 billion yuan, netting 24 million yuan. In 2003, Shenzhen Development Bank launched the "1+N" supply chain financing service. As the initial model of supply chain finance, due to incomplete information flow and overly simple credit endorsement by core enterprises, many "intermediary businesses" emerged with frequent defaults. The 2013 Qingdao Port incident, involving repeated pledge of warehouse receipts in a fraud case, was a sign. In October 2017, the State Council issued the "Guiding Opinions on Actively Promoting Supply Chain Innovation and Application," explicitly stating the need to actively and steadily develop supply chain finance. On February 4, 2018, the Central Committee of the Communist Party and the State Council issued the "Opinions on Implementing the Rural Revitalization Strategy" (Central Document No. 1), supporting the development of rural supply chain finance. The concept and technological innovation brought by "Internet + Supply Chain Finance" have given commercial banks and small and micro enterprises hope, and a new era of supply chain finance has quietly arrived. According to the "2016 Internet + Supply Chain Finance Research Report," in 2015, the supply chain finance business of online lending platforms grew much faster than the industry average, with new investor numbers also far exceeding industry levels, indicating strong momentum. An industry report by Forward Industry Research Institute predicts that by 2020, China's supply chain finance market size could reach approximately 15 trillion yuan. Supply chain finance is indeed penetrating commercial banks, large enterprises, and even P2P platforms. Last year, Zhejiang Taizhou Bank developed a B2B supply chain e-commerce platform for core enterprise Zhengte Co., Ltd., called Gongyinju, which integrates with ERP systems. This allows upstream and downstream small enterprises to conduct self-service online transactions, effectively expanding the enterprise chain's coverage while breaking traditional geographical restrictions, greatly reducing the average cost of loans for small and micro enterprises. Additionally, after the Agricultural Bank of China, Bank of China, Construction Bank, and Bank of Communications successively integrated blockchain business, more regional and small banks have followed suit, launching innovative supply chain finance products. For example, CITIC Bank launched "Xin e Chain - Payable Transfer Financing," and Huaxia Bank's "Chain Connect Xiong'an - Blockchain - Supply Chain" saw its first loan disbursement in June. A Google search for "supply chain finance" shows the first page mainly explains what it is, while the second page is roughly divided among predictions of market growth, blockchain technology integration, and bank involvement. Supply chain finance is currently being "boosted," and I fear the next step is being "killed." So I must first provide a precaution: Supply chain finance is not perfect; rationally viewed, many problems remain to be solved. For example, after commercial bank-led supply chain finance integrates blockchain technology, how can it meet all transaction scenarios, how to judge transaction credit based on data, and how to regulate? The "M+1+N" model of supply chain finance encounters rural financial markets that are gradually emerging, but things are not as simple as imagined. Rural finance often involves heavy assets and large demand, and the backwardness of internet development leads to incomplete enterprise information, inconvenient system integration, and entrenched payment concepts, all of which hinder supply chain finance development. There are also P2P platforms that use supply chain as a tool to rake in money, only to disappear, leaving nothing but a dream. Up to now, supply chain finance still faces many problems. The first is the lack of standards. The supply chain finance service system mainly relies on basic laws such as the Contract Law, Property Law, and Guarantee Law, which cannot cover the essence and characteristics of supply chain finance. Industry norms have not yet formed, there are no standards for early access, and financial behavior can easily go astray. Secondly, regulatory issues have always been a major concern in China's financial industry; we cannot ignore it, nor can we kill it with overregulation. In May of this year, the regulatory responsibility for commercial factoring companies was transferred from the Ministry of Commerce to the CBIRC, which also reflects that there is still room for improvement in China's regulatory landscape. On November 19, Zhou Liang, Vice Chairman of the China Banking and Insurance Regulatory Commission, stated that regulation cannot be like an octopus that contracts its whole body when stimulated and relaxes completely when stretched. "What is the 'octopus effect'? It means that an octopus is a simple ganglion animal; when a certain point on its body is stimulated, it contracts its whole body, and when stretched, it relaxes completely," Zhou said, emphasizing that regulation should not be like an octopus; it should reflect structural orientation and be precise. Furthermore, how can we substantially reduce corporate financing costs? Under the supply chain finance model, financing costs are reduced to 8%-20%, lower than the over 20% on P2P platforms, but when channel fees and approval system inefficiencies are considered, it does not significantly attract small and micro enterprises. There are countless pseudo-innovations in the market under the name of "supply chain finance," whether providing channels or fabricating transactions, often still relying on the credit endorsement of core enterprises, contrary to the innovative development of supply chain finance, merely putting an "innovation" coat on traditional business. 3 Supply Chain Finance: Cultivators Quietly Arrive Zhong Shengjiu, CEO of Shanghai Wenyi Information Technology Co., Ltd., who experienced the era of China's earliest e-commerce platform 8848, has his own theory of cultivation: "The meeting rooms are named after cultivation realms: Dacheng, Yuanying... I think entrepreneurship is a process of continuous cultivation." Zhong pointed out: "As Randall and Farris proposed, supply chain finance should be the provision of capital cooperation between upstream and downstream to reduce average costs and improve efficiency. Solving the cash flow problems of SMEs cannot rely solely on credit; if supply chain finance is to solve the liquidity problems of enterprise operations, then what should be established is a more flexible settlement method." Wenyi's "Enterprise Series" has gone through three versions. The first was an enterprise reconciliation tool, the second was enterprise accounts receivable management. Wenyi found that whether it was reconciliation or accounts receivable management, it was useful but far from being valued by enterprises, because what enterprises want most is fast payment and early collection. The third version is the current Enterprise Series 2.0, aiming to make dynamic settlement the settlement method of the internet era. Dynamic settlement is a supplementary means to long-term trade settlement payment terms between enterprises (B2B). Based on existing trade terms, enterprises can dynamically adjust payment periods and related discounts according to their current working capital situation, in both existing and upcoming business with trading partners. Dynamic settlement helps enterprises strengthen capital flexibility and improve capital efficiency. While ensuring their own cash flow safety, enterprises can also use dynamic settlement to help upstream and downstream partners improve capital flexibility, building a win-win supply chain collaboration model. To make dynamic settlement easy to use, Enterprise Series adopts methods such as buyer early payment as a pull, seller red envelope bills as a push, automatic calculation of fixed discounts, dynamic discount models, and simplified reconciliation processes to promote the initiative, enthusiasm, and effectiveness of payment collection. On the basis of promoting the flow of settlement information between purchasing and selling enterprises, for companies with financing needs, internal control evaluates risk based on accounts receivable red envelope bill scenarios, combining transaction information with inventory, ERP data, etc., and connects with bank systems. Banks assess and lend based on the specific transaction credit provided by Wenyi, combined with other big data, and enterprises use credit payment. The core of risk control in supply chain finance is the specific identification of cash flow. In this regard, Wenyi proposes the concept of "transaction credit reporting," different from the "enterprise credit reporting" done by most credit reporting agencies. The essence of supply chain finance lies in separating the risk of a single transaction from the financing enterprise, providing financing based on transaction security credit reporting, not just static external information credit reporting. Zhong metaphorically said, to see if a coffee shop is doing well, the most direct way is to stand at the door and see how many cups it sells in a day, because that is the business. Unlike various "supply chain finance" platforms in the market, "not touching money" is Wenyi's distinctive principle. It is reported that Wenyi has cooperated with multiple banks, through different models such as customer referral, scenario provision, and even in-bank proactive risk control. Especially under joint operation, the full system import saves enterprises from offline negotiation and processes, allowing online application and disbursement directly. Zhong admitted that as a technology company, there have been hesitations over the past eight years. Facing opportunities in the Chinese market, when P2P rose in 2015, cash loans in 2016, and cryptocurrency in 2017, the moment of decision always required returning to the initial question: "Why are we doing this?" Do not forget the original intention, and you will achieve your goal. In life and work, in the supply chain finance industry, Wenyi-style "cultivators" are especially precious in this winter! Supply chain finance in the internet era has opened a new route for financing small and micro enterprises. Society needs it and should accommodate its trial-and-error costs. While guiding compliance and punishing violations, we should jointly promote the further improvement of supply chain finance through regulatory transparency, clear access thresholds, and technological progress, making it a dark horse in difficulties, cutting through thorns on the lost path. It is reported that new users registering for Enterprise Series in November will receive a 100 yuan account bonus and can also participate in the "Gift on Gift" activity, using Enterprise Series to collect payments and win prizes. For details, follow the Enterprise Series official account or click "Read Original" to obtain.