As trade war deepens, a state insurer in China helps to soften the blow

SInosure is cushioning exporting companies from the threat of losing deals. (AP)
Updated 12 September 2019

As trade war deepens, a state insurer in China helps to soften the blow

  • Support offered to Chinese exporters to the US is seen as a lifeline, but some say it may fall foul of WTO commitments

As the US-China trade war intensifies, an insurance company run by the Chinese government is stepping in to support Chinese exporters, providing low cost coverage and chasing down US importers unwilling or unable to pay mounting tariffs.

China Export & Credit Insurance Corp, known as Sinosure, has aggressively increased its insurance of Chinese exporters since last year, according to company sources and public data.

The government-led aid is being carefully watched by trade experts who say the practice may run afoul of World Trade Organization (WTO) commitments or be challenged by the administration of US President Donald Trump, who has railed against what he says are China’s unfair trade practices.

Sinosure has boosted the number of new clients by thousands since last August, often relaxing its standards to do so, company data and two Sinosure sources familiar with the standards say. In some cases, local governments are even paying the premiums.

The insurance policies help cushion companies from the risk of export deals collapsing because of elevated duties on goods flowing between the world’s No.1 and No.2 economies.

China and the US have been locked in a tit-for-tat trade showdown for more than a year, with the latest increases to tariffs on hundreds of billions of dollars worth of goods taking effect this month.

Last year, as the trade war started to bite, Sinosure’s claim payouts surged more than 40 percent to nearly $2 billion, according to data from the company, which is owned by an investment company controlled by the finance ministry.

Payouts are poised to climb further this year with tariffs rising, the company estimates.

The payments stem from what one Sinosure official said was a growing number of US buyers of Chinese goods who were unwilling or unable to pay higher prices for shipped goods. That has left some cargoes stranded at US ports, and Chinese exporters on the hook.

“We’re fulfilling our role as a policy insurer, not a for-profit commercial institution,” said the official who spoke on the condition of anonymity because he was not authorized to talk to the media.

The Ministry of Finance, the ultimate parent of Sinosure, did not immediately respond to Reuters’ requests for comments.

Eugene Weng, a Shanghai-based attorney from law firm Wintell & Co., who represents Chinese exporters in trade investigations, said it was unclear if Sinosure’s practices might trigger WTO scrutiny.

For its part, the Trump administration has provided billions of dollars in subsidies to American farmers affected by Chinese tariffs as it too seeks to cushion the impact of the trade war.

Dan Harris, a lawyer who represents US importers, said he has received increasing requests for help dealing with Sinosure demands for payment on behalf of Chinese exporters.

“Before the trade war, I might go ... four, five months without getting a Sinosure email, now I’m getting four or five a week,” said Harris, managing partner at international law firm Harris Bricken.

Sinosure did not respond to Reuters’ requests for information about its push to support smaller exporters, but recent figures — some public and others disclosed to Reuters — provide an insight.

In 2018, the total sum insured by Sinosure jumped 16.7 percent to a record $612 billion, the fastest annual pace in six years. Premium income rose just 6 percent, reflecting the non-commercial nature of many of Sinosure’s insurance policies.

Meanwhile, claims payouts surged 41 percent to nearly $2 billion, the highest in Sinosure’s 18-year history, as loss recovery slumped 32 percent from the prior year, company disclosures show.

As a result, Sinosure saw its net profit tumble 42 percent last year to 359 million yuan ($50.5 million). That represents a return on equity of just 0.9 percent, according to Reuters calculations.

A Sinosure source said the situation has deteriorated in 2019 as the trade war escalates, with the US by far the biggest source of risk.

“Tariff hikes have become a new excuse for US importers to refuse payment,” Sinosure’s subsidiary in China’s eastern Fujian province said on Sept. 2, a day after Washington slapped new tariffs on Chinese goods.

In the first half of the year, non-payment cases involving US buyers surged 80 percent in Fujian, hitting the region’s fishing, textile and garment industries, said Sinosure. It has partnered with the local government to offer free insurance for small businesses.

Chinese businessman Xu Aimin, whose Nantong Modern Sporting Industrial Co. generates one third of sales from the US, called Sinosure’s product “a life boat.”

“Another increase in tariffs is just a tweet away,” he said, referring to President Trump’s preferred method of communication.


Oil recoups losses as OPEC, US Fed see robust economy

Updated 14 November 2019

Oil recoups losses as OPEC, US Fed see robust economy

  • US-China trade deal will help remove ‘dark cloud’ over oil, says Barkindo

LONDON: Oil prices reversed early losses on Wednesday after the Organization of the Petroleum Exporting Countries (OPEC) said it saw no signs of global recession and rival US shale oil production could grow by much less than expected in 2020.

Also supporting prices were comments by US Federal Reserve Chair Jerome Powell, who said the US economy would see a “sustained expansion” with the full impact of recent interest rate cuts still to be felt.

Brent crude futures stood roughly flat at around $62 per barrel by 1450 GMT, having fallen by over 1 percent earlier in the day. US West Texas Intermediate crude was at $56 per barrel, up 20 cents or 0.4 percent.

“The baseline outlook remains favorable,” Powell said.

OPEC Secretary-General Mohammad Barkindo said global economic fundamentals remained strong and that he was still confident that the US and China would reach a trade deal.

“It will almost remove that dark cloud that had engulfed the global economy,” Barkindo said, adding it was too early to discuss the output policy of OPEC’s December meeting.

HIGHLIGHT

  • US oil production likely to grow by just 0.3-0.4 million barrels per day next year — or less than half of previous expectations.
  • The prospects for ‘US crude exports had turned bleak after shipping rates jumped last month.’

He also said some US companies were now saying US oil production would grow by just 0.3-0.4 million barrels per day next year — or less than half of previous expectations — reducing the risk of an oil glut next year.

US President Donald Trump said on Tuesday Washington and Beijing were close to finalizing a trade deal, but he fell short of providing a date or venue for the signing ceremony.

“The expectations of an inventory build in the US and uncertainty over the OPEC+ strategy on output cuts and US/China trade deal are weighing on oil prices,” said analysts at ING, including the head of commodity strategy Warren Patterson.

In the US, crude oil inventories were forecast to have risen for a third straight week last week, while refined products inventories likely declined, a preliminary Reuters poll showed on Tuesday.

ANZ analysts said the prospects for US crude exports had turned bleak after shipping rates jumped last month.