Chinese company Sinochem Energy High-Tech has launched a new blockchain warehouse receipt platform for small and medium enterprises (SMEs) in the country’s petrochemical sector.

The solution, used for the first time in a transaction in late September, saw oil trader Beijing Longrunkaida request warehouse receipts from logistics service provider Nanchu Management Group on the platform.

Beijing Longrunkaida then used the warehouse receipts to secure a trade finance loan from China Construction Bank.

Sun Liming, vice-president of Sinochem Energy High-Tech, says that the platform works to ensure there is a “strict correspondence” between digital warehouse receipts and stored goods.

Using internet of things (IoT) technology means the goods linked to the receipts are monitored closely, he notes, adding that the blockchain element helps prevent any tampering with the recorded data.

By using such technology, solutions like these are aiming to reduce risks, including fraud, for financial institutions, while making it easier and quicker for companies to gain access to warehouse receipt financing.

The warehouse financing sector was rocked by the Qingdao scandal in 2014, which saw Chinese firm Dezheng Resources raise Rmb12.3bn (US$1.78bn) in funds using either fake warehouse receipts or fake certificates for aluminium ingots, alumina and refined copper at the eastern Chinese ports of Qingdao and Penglai.

Sinochem notes in a statement: “It is difficult for financial institutions to track the transaction process of bulk commodities due to the lack of effective risk control measures, especially those of controlling goods, which could lead to frequent risk issues like false warehouse receipts, unclear property in goods, repeated pledges, impairment or loss of collateral.”

Warehouse companies are potentially exposed too.

“Unscrupulous enterprises would forge seals and issue false inventory certificates, delivery documents, amongst others. After being duped, the deceived company often sues the warehousing company as well, who hence have little choice but to quit issuing warehouse receipts and related business with financial supervision, but focus solely on warehousing business with limited income,” Sinochem notes.

Going forward, Sinochem says that it will work with various players – such as China Construction Bank, warehouse firms, commodity inspection agencies, and the Shanghai Petroleum and Natural Gas Exchange – to further develop the digital warehouse financing sector.