Increased Risks In Export Trade, Ministry Of Commerce Urgently Called For China'S Credit Insurance Strategy

In March 16th, this magazine published the "Sinorama trade turnover decreased by 40% - a report that the default rate of Chinese enterprises' foreign exchange collection increased by 189%." the article quoted the relevant data of China Export and Credit Insurance Corp (hereinafter referred to as "China trust insurance"). In 2008, the total amount of actual compensation paid by the company amounted to 360 million US dollars, an increase of 209%. The default rate of Chinese enterprises in the export collection link increased by 189%.

In addition, the report quotes the view of China's credit insurance, suggesting that under the current severe foreign trade situation, the credit risk of overseas buyers is increasing, the risk of overseas sovereign default is increasing, and the credit risk of foreign banks has been increasing.

It may be a coincidence that only a few days later, a person familiar with the matter told China Economic Weekly: "a few days after the publication of the report, the leaders of the Ministry of Commerce have summoned the senior officials of China's credit insurance and some regional general managers to meet in Beijing, and discuss countermeasures in the light of the current complex and severe situation."

Reporters on the China credit insurance website, saw the relevant news.

In March 18th, the leaders of China's general manager Wang Yi and some regional general managers went to the Ministry of Commerce to report to minister Chen Deming, and the Vice Minister of Commerce Ma Xiuhong, Jiang Yaoping and Chen Jian attended the meeting.

According to the reporter, since the second half of last year, the Ministry of Commerce and the China credit insurance executives have held various meetings to discuss countermeasures to further prevent the risk of foreign exchange earnings, and have issued specific documents.

"The general office of the Ministry of Commerce has issued documents requiring us to guard against the risk of foreign exchange earnings from exports."

An official of the Shanghai Municipal Commission of Commerce told reporters.

The full name of the document that has been issued is "Notice of the general office of the Ministry of Commerce on Further Strengthening the work on risk prevention of foreign exchange earnings collection" ([2008]176), which is issued in December 30, 2008.

The reporter was informed that in the first quarter of this year, the competent commercial departments of all provinces, autonomous regions, municipalities directly under the central government, the cities under separate planning and the Xinjiang production and Construction Corps, the foreign economic and Commercial Counselors' offices (chambers), the chambers of Commerce and the associations, had received the notice, and some of the competent commercial departments had forwarded the notice to the lower level counterparts in the near future.

The notice reminds us that the impact of the global financial crisis on the real economy is becoming increasingly prominent. Some foreign commercial banks have problems of insufficient liquidity, and the phenomenon of malicious debt avoidance or breach of contract by importers in some countries or regions has increased significantly, which has increased the risk of Chinese enterprises' export remittance.

"High attention to changes in the international banking market" has been placed in the most prominent position.

The circular pointed out that since the beginning of this year, the global financial crisis has seriously affected the healthy development of the international banking industry, and has also had a great impact on the normal development of the inter bank settlement business.

In response, an official of the Shanghai Municipal Commission of Commerce said to China Economic Weekly: "we recommend that export enterprises adopting collection and settlement methods should do a good job in credit investigation of importers, reasonably determine the line of credit and collection methods according to the creditworthiness of importers, try to choose the spot payment method, or increase the collecting bank guarantee, and actively guard against the risk of collection settlement."

The Ministry of Commerce has indicated that when a letter of credit is used for settlement, an enterprise should keep abreast of the credit standing of the letter issuing bank. In particular, the letter of credit issued by a small and medium-sized commercial bank in a serious financial crisis area should attach importance to the effect of the additional clauses on the payment of the letter of credit. If necessary, a strong bank confirmation can be required to reduce the settlement risk of the letter of credit.

China's credit insurance official told reporters: "in the case of global banks being downgraded, export credit risks such as letters of credit and other bank credit are increasing. In the short term, the letter of credit settlement will no longer have the original credit level.

Attention should be paid to risk. "

In this regard, the notice clearly pointed out that we should make full use of export credit insurance to avoid the risk of foreign exchange collection.

Export credit insurance is an important means to ensure the safety of export earnings.

Therefore, under the current circumstances, China's letter of insurance will be better able to assume the responsibility of policy oriented financial institutions.

Li Jian, a researcher at the Ministry of Commerce, said to China Economic Weekly: "under the current severe foreign trade situation, China's credit insurance should play an increasingly important role in supporting policy insurance. The government should give money to help enterprises to insure insurance and lighten the burden on enterprises. This is the way to actively encourage enterprises to participate in insurance."

At present, China's credit insurance company is the sole state-owned insurance company undertaking the policy export credit insurance business, and has always been responsible for sharing risks among domestic export enterprises.

In 2008, China's total insurance coverage amounted to US $62 billion 600 million, though it increased by 58% compared to the same period last year, but the indemnity expenses for the same period reached US $360 million, up 209% over the same period last year.

Among them, the total insured amount of short-term export credit insurance reached US $37 billion, an increase of about 30% compared with the same period last year, and the expenditure for compensation was nearly US $110 million, and the rate of compensation was as high as 85.9%, a year-on-year increase.

Reporters noted that by the end of 2008, China's credit insurance announced the "national risk analysis report", which shows that 48 countries in the world have increased the risk level, downgraded risk rating, and reduced the scale to 25%.

It is worth noting that many countries that have downgraded risk ratings are developed countries with relatively mature market economy and low traditional export risks, which lowered the US risk rating for the first time.

Why is there such a change?

China's credit insurance official told China Economic Weekly: "since last year, China's export enterprises have lost a lot of losses in the US market.

According to the report of China's credit insurance company, the textile and electromechanical products reported the largest amount of damage, which has exceeded ten million US dollars.

The export credit insurance cases reported to the United States generally have a large amount of money, serious disputes, frequent bankruptcies and more litigation cases.

According to China's credit insurance data, in 2008, American buyers reported a loss of 156 million US dollars, an increase of 150%, while European buyers reported a loss of 170 million US dollars, an increase of 206%.

It is precisely because of the rapid deterioration of the external environment, resulting in a single season of abnormal phenomena, that is, from October 2008 onwards, the new insurance policy of China's credit insurance increased faster (more than 100% of the new monthly insurance policy in normal state), with short-term export credit insurance as the main indication, and the demand for credit insurance increased rapidly. In the fourth quarter, the contribution of the new policy premium was nearly 20%, which far exceeded the normal level.

An industry professional told the China Economic Weekly that such underwriting growth is not a good thing, and may face greater risks.

As the trade situation becomes more and more uncertain, underwriting will lose its coverage in a short time.

In the trade of emerging market countries, such incidents have been a bit of a sign.

According to China's Xinbao data, the scale of insurance coverage to emerging markets in 2008 amounted to US $28 billion 300 million, accounting for 65.5% of total exports of US $43 billion 200 million.

But in January of this year, the loss of China's credit insurance report increased rapidly, not only a sharp increase in the number of cases, but also the danger area spread from the United States to Europe, Asia and Latin America.

China's Xinbao report cautioned that due to the financial turmoil, the external solvency of the emerging market countries, the reliability of sovereign guarantees and the stability of the exchange rate policy will be greatly affected. The risk of foreign exchange control is also increasing, and the level of national risk is further rising.

Since the reform and opening up, the growth of foreign trade is higher than the national economic growth, and is the most prominent feature of China's economic development.

Li Jian, a researcher at the Ministry of Commerce, said that since the "fifteen", the average annual growth rate of China's imports and exports is about 28%, much higher than the 17% annual growth rate since the reform and opening up.

For the current global trade situation, Li Jian judged that the demand for the United States was suppressed, and the growth of demand outside the United States was difficult to fill the gap caused by the decline in US demand in the short term.

It is very likely that global trade will enter a period of 3 to 5 years of downturn.

It is judged that the weakness of Global trade in a longer period may directly affect the performance of China's credit insurance.

In this regard, China's Guangdong branch and Shanghai branch related people also put forward their own views.

Chen Lian, general manager of China credit insurance Guangdong branch, is expected to have a worse year for China's credit insurance because of the large number of unpaid claims and the lagging effect of the financial crisis last year.

Lu Dong, assistant general manager of China's Shanghai branch, believes that the recent export growth in major peripheral countries and regions in the upper reaches of China's supply chain has seen a sharp decline. The export of these economies is generally regarded as the leading indicator of China's exports and has a predictive significance.

As a matter of fact, due to the fact that processing trade accounts for half of China's exports, China's current import is also a leading indicator of exports in the next few phases.

According to statistics of Guangdong Provincial Bureau of statistics, in February this year, the total import and export volume of Guangdong was 34 billion 30 million US dollars, down 19.2% from the same month last year, of which the total import value was 14 billion 621 million US dollars, down 22%.

According to the statistics of Shanghai Municipal Bureau of statistics, in January this year, the total import and export volume of Shanghai was 18 billion 134 million US dollars, down 29.6% from the same month last year, creating a new low import and export volume since June 2006. The total import value is 7 billion 39 million US dollars, which is 43.4% lower.