Letters of credit (L/Cs) are flowing more freely now in China, according to a Chinese business leader.

The chief executive of China Export Finance, Karl Alomar, nevertheless cautions that lenders, still wary of counterparty risk, are more selective than they used to be.

Limited recovery

The trade financing market is getting back on its feet Alomar told the news agency Reuters.

But banks are not "discounting L/Cs as though there's no tomorrow ... they are still being very cautious," he said.

Alomar reckons banks are being "very specific" about the terms and structure of the trade financing they offer.

Lack of capital

While Chinese banks appear to have developed more of an appetite for trade finance, smaller Chinese firms would struggle to find banks prepared to discount their L/Cs, according to Alomar.

He also thinks many western banks doing business in China do not have as much capital as their Chinese counterparts and that there is still nowhere near the same availability of L/Cs that there was in the market before September 2008.

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