Under-capacity in China's manufacturing sector has prompted Beijing to issue an order for banks not to open letters of credit (L/Cs) for imports that could be replaced by goods produced in China.

Sluggish performance in what is now the world's second largest economy is behind Beijing's move to limit L/C issuance.

Presidential criticism

The L/C difficulties follow China's President Xi Jinping's recent criticism of shopping sprees abroad by Chinese tourists during which he called for more domestic purchases.

A trading company employee has told local media that as a result of this criticism, if the Chinese authorities determine that substitute products made in China are available, they reject or delay import L/C issuance.

Tough times ahead

As the world's largest trading country, China is substantially reliant on L/C transactions so official orders to limit documentary credit issuance is bound to have a big impact on exporters to the Chinese market.

The result of any such action is likely to have a substantial impact on global trading too.

Mixed impact

China is still expected to need L/Cs for imports such as high-tech liquid crystal panels, image sensors and high-tensile steel plates that it relies on for its manufacturing sector.

But Chinese importers of consumer goods and end products for business use that are also made in China are facing a tough time obtaining the L/Cs they need for their purchases.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.