Legal Analysis Of Bonded Warehouse Repurchase Financing In China

According to the statistics, there are almost 80% trades need to rely on trade financing services in international commodity trade, especially in recent years, the trend of trade financing shows a growing amount of financing and the financing methods tends to be more innovative. In many ways of trade financing, since the repurchase trade finance can not only make capital provider obtain the ownership of the goods through the trade which would effectively alleviate the default risks of loss of the financing side, but also would transform the inventory goods into funds, it is a win-win option for both the parties of the repurchase agreements. In addition, due to the unique advantage to the bonded area, which is within the territory of a nation but out of the customs territory brings a lot of benefit not only for the parties and subject matter of the contract, but also tax with incomparable superiority. In light of parties of the contract, free trade zone repo trade financing are not limited to free trade zone registered enterprises, domestic enterprises and overseas enterprises can also participate in; in light of the subject matter of contracts, bonded area is not affected or less affected by the limitation of quota and license, which can expand the scope of financing subject matter; On taxes, the bonded area policy has natural advantages, these advantages further enhance the attraction of bonded area repo trade financing to the related parties.However other than transparency of the data in international trade, the data of thebonded trade and the bonded goods inventory has been ignored for a long time, until now inventory of trade in the world of the bonded zone still has not yet been officially announced by an authoritative organization, so using bonded warehouse goods for repo trade financing operation could face a huge risk. Repo trade finance involves two trade agreements, the recent sales agreement and forward repurchase agreements, the two trade agreements in combination take the financing effect, therefore during the performance of the agreement, if there are any disputes, the court would hear the case based on sales agreement or guarantee loan agreement is uncertainty. Qingdao Port trade finance fraud case involves a variety of trade finance, the most knowingly dispute was the repurchase dispute between Citigroup and Mercuria about 2.7million dollars of commodity which was involved in Qingdao case, the dispute was taken to the High Court in London. In the trial, the judge commented that there was a true sale between Citigroup and Mercuria, for the ownership and the risk of the cargo had been fully transferred, even though there was a financing effect, it should be identified as a sales contract. The author thinks that London’s high court case puts forward the concept of "true sale" in the process of repo purchase financing dispute which is good reference for our country to learn.For a long time, the most principal risk of repurchase is the risk of been re-characterised, it is still unsure now that the repurchase agreement could be possibly recognized as a commodity sales contracts or loan contracts with collateral security. In this paper, I will take the Citigroup and Mercuria’s case as an example while in conjunction with the relevant provisions of the domestic laws and regulations and domestic court’s judgment relating to this kinds of repo dispute, to analyze the nature of the repo contracts and the effectiveness of the trade finance contracts and the effectiveness of the property act. In addition to re-characterisation risk, there are other legal risks. Under the condition of being re-characterised by the court, whether the juristic act of real right is valid is another risk for both the parties for they were performing their duties according to the re-characteised agreement. Due to difference of the location of the parties and the location of the subject matter of the agreements, there are potential risks concerning to the applicable law. The author in this article only analyze repo trade financing in Chinafree trade zone, and combined with Chinese laws and regulations and the relevant judgment of the domestic courts for such cases in the judicial practice.As so far, the types of Chinese free trade zones are complex and diverse, the applicable regulations are different and the provisions of relevant legislations for the supervision of the bonded goods is also slightly different, to a large extent those factors not only create obstacles on bonded trade financing for overseas enterprises and financial institutions, but also add more uncertainty to the validity of the repurchase trade finance agreement as well as the validity of change in related property. Additionally, in our country, to a large extent the problems of the transfer of bonded goods and the problems in the supervision of pledge and the imperfect related system construction have caused the fraud financing case occurred in Qingdao Port.The exposure of Qingdao Port case raises the doubts to the bonded warehousing, logistics and trade supervision, in addition, further requests have been demanded on the complied documentary trade under the bonded warehouse management. The writer hopes to demonstrate the character of repurchase trade financing agreements and the validity of the agreement via this thesis, on the one hand would sort out the relevant provisions and regulations in our country, on the other hand it can be used for reference in the judicial practice in order to effectively promote the repurchase trade financing activities in the bonded zones in China, moreover to promote overseas enterprises and financial institutions to get engaged in the trade financing business in China.