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.

Sharjah sells $1bn sukuk

Updated 03 June 2020

Sharjah sells $1bn sukuk

  • Gulf states seek to bolster finances hit by pandemic and historic slide in oil prices

DUBAI: Sharjah, the third-largest emirate of the UAE, sold $1 billion in seven-year sukuk, or Islamic bonds, on Tuesday, according to a document from one of the banks arranging the deal.

The debt sale comes as several governments in the Gulf seek to bolster their finances to face the economic fallout from the coronavirus pandemic and a historic slide in oil prices.

Sharjah set the final spread at 245 basis points (bps) over midswaps for the sukuk, which are Islamic sharia-compliant bonds, according to the document seen by Reuters.

It tightened the spread by 30 bps from where it began marketing the notes earlier on Tuesday.

Sharjah, rated Baa2 by Moody’s ratings agency and BBB by S&P, is a relatively frequent issuer of US dollar Islamic bonds.

HSBC was hired as global coordinator for the transaction. Other banks on the deal were Bank ABC, Dubai Islamic Bank, Gulf International Bank, Mashreqbank and Sharjah Islamic Bank.

In May, the emirate raised 2 billion dirhams ($545 million) in privately placed one-year sukuk to support its economy during the coronavirus pandemic, according to a statement by Bank of Sharjah, which arranged that deal.

“Issued as 12 month dirham-denominated paper in several tranches, the Sharjah Liquidity Support Mechanism (SLSM) sukuk represents the first rated short term local currency tradeable instrument in the UAE, which can be used for liquidity management by banks,” the Sharjah Finance Department said in a statement on Tuesday, confirming that deal. It said that it was a first tranche and that further tranches with one or more other banks were expected to expand the SLSM to 4 billion dirhams.

S&P Global Ratings in April revised its outlook on the emirate to negative from stable due to lower oil prices and the impact of the new coronavirus.

“Although we expect GDP growth to recover in 2021, lower-for-longer oil prices and a protracted lockdown period could pressure the emirate’s fiscal position,” the agency said.