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.

Indian property slump leaves beleaguered banks exposed

Updated 15 min 43 sec ago

Indian property slump leaves beleaguered banks exposed

  • While the Indian banking system could be hit by billions of dollars of additional soured debt, the cash crunch in the housing market has levied a toll in human misery

MUMBAI: India might have thought the worst of a bad loans crisis was past, but a severe cash crunch in the real estate industry could augur fresh strife for its banks. A slump in the residential property market is leaving many builders struggling to repay loans to shadow lenders — housing finance firms outside the regular banking sector that account for over half of the loans to developers.

With about $10 billion of development loans coming up for repayment in the first half of 2020, according to Fitch Rating’s Indian division, the fallout could spread to mainstream banks that have lent money to the shadow lenders or invested in their bonds.

Indian financial authorities, including the central bank and government, have said this year that the banking sector’s bad loans — totaling more than $150 billion — are on the decline for the first time in four years after ballooning during a debt crisis. But the number of property developers falling into bankruptcy has doubled during the past nine months, piling pressure on nonbanking finance companies (NBFCs), commonly known as shadow lenders.

Potential implosions of these NBFCs could expose banks, according to 12 banking and real estate sources.

A senior banking industry official, declining to be named due to the sensitivity of the matter, said banks would be affected by the property cash crunch in three ways: Their lending to NBFCs, their own direct exposure to developers and also individuals who do not repay mortgages.

“It will be a triple-whammy,” he said. While the Indian banking system could be hit by billions of dollars of additional soured debt, the cash crunch in the housing market has levied a toll in human misery.

Retired Squadron Leader Krishan Mitroo has paid 90 percent of the cost of his house in Noida, northern India, to developer Jaypee, and the property was supposed to be handed over five years ago. However, Jaypee was forced to delay the project and went into insolvency in 2017.

“The project has been stuck and there is no progress at all. Even the bankruptcy court has not been able to resolve the issue so far, it is just hanging in thin air,” Mitroo said. He did not say how much money he had paid, but properties in that project range from about $56,000 to $140,000.

Several such projects are stuck across the country and buyers are waiting for new developers to take interest and complete them with the hope that their hard-earned money, which has been stuck for years, won’t be lost forever.