Company in china wants letter of credit

In my opinion,you have no other choice but do TT payment with them since your bank can't issue L/C for you.But TT have a little risk,so both of you have to take the risk.You said you can't assure for TT prepaid,but the supplier also can't assure for TT collect.So most of Chinese company would like to do business with TT prepaid or L/C at sight.Of course,if you have established long business relationship,you can do TT collect with them.They will accept it as Chinese are honest people,I think.
If you have any question,I would like to help you to solve this problem