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

  • Insurance
  • Friday, 13 Sep 2019

BEIJING: 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 two sources say.

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 United States have been locked in a tit-for-tat trade showdown for over 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% to nearly US$2bil, 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, according the company’s internal 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 authorised 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 who represents Chinese exporters in trade investigations, said it was unclear if Sinosure’s practices might trigger WTO scrutiny.

“But such practice, if widely implemented, carries the risk of violating WTO commitments, and will face challenge from the Office of the United States Trade Representative for sure, as they usually set rules on their own,” said Weng, from law firm Wintell & Co.

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. — Reuters

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