First, local Chinese courts have issued injunctions, from time to time, barring Chinese banks from clearing letters of credit whose underlying documentation has been challenged. The central government has issued guidance against this practice, which should gradually disappear. Banks can generally be found to take this modest risk. Just as with letters of credit, the exporter submits a full set of trade documents for payment collection to the bank designated in the contract. The Chinese bank will send the documents to the home office, which examines them and, in some cases, passes them to the buyer for further examination.
Payment is made after the documents have met the approval of all parties.
This method of payment provides rather thin coverage against default. It can be considerably less expensive than a letter of credit, but should be used with caution. The supplier helps to finance, on behalf of the Chinese buyer, the purchase of its equipment. The U.S. Ex-Im Bank has programs which provide guarantees and credit risk insurance to exporters. Some private companies, such as American International Group, also offer export credit insurance policies for China.