A NEW cash management service which digitizes the bidding process is taking shape in China, bringing substantive advantages for both bidders and sellers alike.

Although at the early stages of adoption, the service – which is encouraged by the State Council – will bring liquidity enhancements for bidders and increase the efficiency of sellers, primarily in China’s manufacturing industry.

In China, the manufacturing industry relies heavily on the bidding process. However, as bidding requires large initial reserve deposits, small- and medium-sized bidders with many ongoing bids may end up having large sums tied up in deposits. In this scenario, they may face working capital pressure if their deposits aren’t returned quickly in the event of an unsuccessful bid.

Large state-owned manufacturing enterprises, such as Beijing-based China Educational & Instrument Equipment Corporation, which among other things produces lab and educational equipment for use in classrooms, collect a large amount of cash deposits from thousands of downstream bidders. According to the Ministry of Finance, deposits should be returned to all bidders within five days after the announcement of the winner of the bid.

This delay creates financial pressure for the finance managers of the bidding companies, and at the same time creates a workload for the manufacturers, as manufacturers need to appoint finance and project managers to oversee thousands of projects, constraining business expansion.

Guangfa Bank, a Chinese commercial bank with a focus on transaction banking, has started providing a smart bidding service, where sellers are able to return deposits automatically at a time previously set by the project manager. Traditionally, finance managers needed to manually transfer the deposits back to the bidders one by one. Guangfa Bank has poached some of the large state-owned enterprise clients from state-owned banks through their bid management system, a source close to the matter told The Asset.

The digitalization of bid management is in line with the guidance issued by the State Council in February 2017. The guidance encourages banks to develop digital bidding management systems which integrate cash management and payment functions. In September 2017, the National Development and Reform Commission also issued regulations governing the bidding process, which requires a higher level of information disclosure from government and related entities.

While bid management is still a niche transaction banking service in China, innovative transaction banks view it as a gateway to acquire new large government-related clients, which usually experience large volumes of demand. At the same time, it may also be a chance to engage bidders, which may also require other transaction banking services, such as supply chain finance and factoring, from their banking partners.

Although there are several banks looking at introducing this service, currently Guangfa Bank is the only bank offering this service in China.

Following the implementation of a smart bidding system, a senior project manager at a Chinese state-owned enterprise says, “Now the bottleneck of our business development is that we do not have enough of a headcount to keep track of all the projects. If we had kept the work manual, we could never have developed new business activities. We received over one billion yuan in bids last year, and this year we received over two billion yuan. We are now reaching the next stage of development.”