China’s Overseas Investment Insurance – Sinosure
For the majority of projects along the Belt and Road Initiative (BRI) four layers of actors can be identified: Lender, Credit Insurance, Construction Company, and Project Developer. The lenders are often familiar names such as China Development Bank (CDB), Industrial and Commercial Bank of China (ICBC) or the Export-Import Bank of China. The provider of Credit Insurance – Sinosure – however is a rather unknown name despite its wide appreance among the BRI projects. Nevertheless, Sinosure is a significant player in the making of projects along the BRI since it provides a safety net critical to Chinese investors. Therefore, we want take a closer look at the Credit Insurarer Sinosure and its engagement within the BRI.
What is Sinosure?
The China Export Credit & Insurance Corporation (Sinosure) is a state-funded insurance company established in 2001 – shortly after China’s accession to the World Trade Organization (WTO). Sinosure was established by merging the Export Credit Insurance Departments of the People’s Insurance Company of China (PICC) and the Export-Import Bank of China (Exim) in order to support China’s foreign and trade development and cooperation. It is China’s only national policy-oriented export credit insurance agency and seeks to encourage Chinese enterprises to invest overseas. Sinosure’s main products and services include medium and long-term export credit insurance, overseas investment insurance, short-term export credit insurance, domestic trade credit insurance, bonds and guarantees related to export credit insurance, accounts receivable management, and information consultation.
The company states its own mission and responsibility to support the Belt and Road Initiative, Made in China 20205 as well as Small Businesses. The business principle of Sinosure is: “By means of export credit insurance against non-payment risks, promote Chinese exports of goods, technologies and services, especially high-tech and high-value-added capital products such as mechanical and electrical products, thus further support foreign trade and economic cooperation, economic growth, employment, and international balance of payments.”
As of the end of 2017, the cumulative domestic and foreign trade and investment supported by Sinosure exceeded USD 3.3 trillion. As of 2017 the company has provided about 70,000 companies going abroad with insurances, risk management and financing services. According to Sinosure claims paid amounted to USD 10.8 billion by the end of 2017. Sinosure also cooperated with more than 200 banks to facilitate export finance and helped export companies obtain loans. Over the years Sinosure has received multiple capital injections through the Central Huijin Investment Ltd., a state-owned investment company, which are understood as a endorsment of Sinosure’s support of Chinese companies going out strategies.
Sinosure has over the years reached various agreements with international companies. Here some examples: In 2016, Sinosure and Euler Hermes Kreditversicherung, concluded a cooperation agreement in the field of state export credit guarantees. In 2011 Sinosure and J.P. Morgan reached an export credit insurance agreement. In 2009 Deutsche Bank signed a Memorandum of Understanding (MoU) with Sinosure to strengthen cooperation between both organizations on Sinosure’s guaranteed products, which support the cross-border trade for Chinese companies. Already in 2008 Export Credits Guarantee Department (ECGD), the UK’s official export credit agency signed an agreement with Sinosure.
Though Sinosure receives a lot of government support it is not immune to losses or corruption allegations. In 2008 the Head of Sinosure, Tang Ruoxin, was removed from post and party membership and arrested in August 2008 over allegations of accepting bribes and later sentenced to 14 years in prison. The decision was made by the China Insurance Regulatory Commission (CIRC), China’s Insurance watchdog. Tang Ruoxin, who has been in the top position of the company since its establishment in 2001 and served as Communist Party Secretary, allegedly offered credit guarantee to the Shanghai Hongsheng (Norcent) Technology Co, who lied to the bank and defaulted on a USD 245 million bank loan. According to CIRC huge government assets were lost due to Tang’s abuse of power. In 2011, after the uprising in Libya, Sinosure had to pay high insurance claims to Chinese companies with investments in the country. Also in 2013, Dai Chunning, a deputy general manager at Sinosure was detained for investigation for serious discipline violations. The investigation concluded in June 2014 that Dai “embezzled massive amounts of public funds with his associates, took massive bribes personally or in association with others, abused his position of power for his personal interests and those of related companies” and that he “committed adultery.”
Sinosure and the Belt and Road Initiative
Chinese financial institutions have so far provided a total of more than USD 440 billion for Belt and Road projects, Yi Gang, governor of the People’s Bank of China, said in a speech at the second Belt and Road Forum in April 2019. As China’s only national policy-oriented export credit insurance agency, Sinosure actively and openly supports the foreign activities of Chinese companies and thus the Belt and Road Initiative and has provided insurance to the most part of the aforementioned USD 440 billion.
More often than not, Sinosure’s involvement in a project is what gives it the green light. The safety net Sinosure offers is critical to Chinese investors, especially in markets with high uncertainties. Banks would rarely say yes to an overseas project without the “Go” from Sinosure to assure that political and market risks associated with projects far away from home are covered.
Sinosure offers a variety of Insurance Products, ranging from Export Credit Insurance and Overseas Investment Insurance to Bond Guarantee. Most important for BRI projects are the Export Credit Insurance as well as the Overseas Investment Insurance. The Overseas Investment Insurance is available for equity and debt investments made by Chinese enterprises in projects outside of China. If the equity/debt receiving project company faces payment defaults, Sinosure will reimburse the Chinese equity shareholder and/or loan provider respectively. The maximum insured percentage of the equity or debt provided is 95 percent with a maximum tenor of 20 years. Sinosure covers risk related to expropriation, war and political riot, breach of contract as well as exchange risks. Both overseas project companies financed by Chinese investors as well as overseas investment projects of Chinese companies are eligible to be covered by the Overseas Investment Insurance. The Export Credit Insurance covers risks in relation to the collection of deferred payments. The tenor is between 2 to 15 years and the maximum insured percentage is 90 percent.
According to the Sinosure official website the company has, by the end of the third quarter of 2017, covered about 1,300 projects along the BRI. The total insured amount on export and investment to Belt and Road countries, by the end of 2017, is stated at nearly USD 510 billion with nearly USD 2 billion paid out in claims and more than 2,300 issued insurance policies.
Sinosure has reached multiple agreements with international private sector actors along the lines of supporting the Belt and Road Initiative. Just in April 2019, Sinosure reached multiple agreements with international companies. It has signed an agreement with the Singapore-based Oversea-Chinese Banking Corporation Limited (OCBC) to support Green Belt and Road Projects such as renewable energy, pollution prevention, clean transport, sustainable water management, and green buildings. Also in April 2019, it signed an MoU with the Standard Chartered Bank to deepen collaboration to facilitate the Belt and Road Initiative as well as a cooperation agreement with the Development Bank of Singapore (DBS Bank).
Overseas investment, especially in developing countries, means risks and uncertainties. Sinosure offers a safety net for Chinese companies operating abroad and is therefore a significant actor for BRI projects. Sinosure’s importance, also for coining future BRI projects, cannot be underestimated since without Sinosure’s “Go”, the future of a propossed project can be at stake.
Sinosure and its role for the BRI hasn’t received much attention. But the insurance companies activities should be watched closer. For one Sinosure could have the capability to influence the types of new projects that will emerge along the BRI corridors. As of now Sinosure does not pay closer attention to environmental risks. Therefore, there is a big potential of positively influencing Sinosure in this reagrd. In addition, Sinosure is also involved in projects with opaque awarding practices. Especially with regard to the corruption allegations of the past, Sinosure should be lobbyed towards more transparent standards and practices. Consequently, it is important to pay closer attention to China’s only policy-oriented export credit insurnce agency.