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China's 95pc export uncovered by credit insurance
12/27/2005
BEIJING, Dec 26 (CEIS): About 95 per cent of China's export are uncovered by export credit insurance at present, Zhou Jian, assistant general-manager of the China Export Credit Insurance Corporation (SINOSURE) disclosed.
Statistics from SINOSURE showed that the proportion of the insurance expenses by Chinese exporters only accounted for 5 per cent of the total export volume in 2004, increasing by a hectic 128 per cent over that in the previous year. However, the rate of bad accounts stands at 5 per cent, far more than the average of 0.5 per cent in advanced nations, a spot check by the Ministry of Commerce (MoC) indicated.
The export credit insurance in Europe may account for 20-25 per cent in the total insurance premiums, according to Coface of France, one of the world's top three credit insurers. But most of the companies on the Chinese mainland have not recognised the benefits of such insurance. The disputes between China's Sichuan Changhong Electric and its American agent A pex at the beginning of this year, which involves 460 million US dollars unpaid, is a good example of the ignorance of Chinese companies about credit management.
For a typical non-financial company, trading credit should make up a maximum 50 per cent of its total assets, an expert said. An uninsured company must face such risks as payment delays, or refusal of payment due to the bankruptcy of overseas partners. Trading with some advancing countries or those with volatile political situation entails higher risks.
According to WTOs anti-subsidy principles, China's foreign trade promotion system must shift from reliance on government subsidy to economic means in accordance with the international routines and the market principle.
Now many domestic export companies pay little attention to export insurance, thinking it a waste of money. But in fact, the insurance could not only help exporters with accounts receivable avoid trading risks, but also bring new financing opportunities. It is estimated that if an insured exporter suffers from a loss, 90 per cent of which could be recovered from the export credit insurer and increase additional cash flow by 80 per cent.
There have been more than 2,000 export companies in China using export credit insurance to prevent from trading risks, and have, to varying extents, accepted the state risk management services offered by SINOSURE.
SINOSURE could realise a total premium of 20 billion US dollars by 2005, including 17 billion US dollars in foreign trade, 3 billion US dollars in capital output and investment. The proportion of conventional trade supported is likely to go up to 6 per cent. The company will strive to lift the supporting proportion up to 10 per cent by 2007, close to the world's average.
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