China has an extensive list of specificities and particular practices. One can go a long way doing business with China before encountering some of them and we picked one of these specificities as today’s subject, which happens to be an entity: SINOSURE.
SINOSURE stands for China Export & Credit Insurance Corporation and is a state-funded policy-oriented insurance company, established in 2001 for promoting China’s foreign trade and economic cooperation. SINOSURE is mandated to promote Chinese exports of goods, technologies and service, especially high-tech and high value-added capital goods like electromechanical products, and national enterprises’ overseas investment, by means of export credit insurance against non-payment risks.
If in one hand probably all Chinese companies have already heard, cooperated, contracted or dealt with SINOSURE at some point in their business activities – especially when exporting products or services –, not surprisingly many (or most) foreign companies doing business in or with China may have never heard of SINOSURE. For the foreign companies who know SINOSURE, especially abroad, there is a big chance that it is because something in their business with a Chinese supplier went wrong.
Essentially, as a foreign business in China, the two most likely ways you would have to deal with Sinosure are the following:
- If you have imported any type of product from China, it is very likely that the Chinese supplier contracted one of SINOSURE´s insurance products to safeguard receiving his payment. Thus, if you placed an order to a Chinese supplier, paid something upfront and for some reason (including lawful ones, like receiving bad quality product) received the goods or service but did not pay the remaining agreed amount, Sinosure would likely contact your company (through debt collection agents or lawyers) to collect the outstanding payment.
- If you would like to have access to any type of credit from Chinese banks for overseas projects, as a Chinese entity with foreign investment or out of a partnership with a Chinese company, the bank will have the debt insured by Sinosure.
Why being aware of SINOSURE existence, role and policies is important when going business in or with China? There is a long list of good reasons, but we can say that the main ones would be to know how to deal with, what to expect from and when to approach (or be approached by) SINOSURE.
In the first case, when there is a payment dispute with a Chinese supplier and Sinosure steps in, it is very important to know that if you just ignore or do not pay Sinosure, it will most likely add your name on their black list of foreign companies doing business with China, which would result that any orders placed by you with a Chinese supplier would not be insured. That does not mean you have to do everything Sinosure wants you to do, but that you should find a strategy to negotiate with Sinosure without losing the possibility to buy from China on credit insured by them. For more information on that subject, we recommend a very interesting post by Dan Harris about it on Chinalawblog.
In the second case, if you are trying to have access to investment, credit facilities and lending related to offshore projects, it is important to know that SINOSURE is as policy-oriented insurer and this is bound by the same policies that apply to official credit facilities. In this sense, it is very likely that when discussing a credit with a commercial bank in China, such as Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, China Minsheng Bank Corp., Ltda. and HSBC, any risk would be evaluated and taken according to SINOSURE regulation and policies.
In both cases, at the end of the day, there is a very high chance that when you are negotiating with your Chinese supplier, business partner or Chinese bank, the general framework of how far you can go or the rules of the game are in a big extend defined by SINOSURE regulations and policies. That is to say how important knowing who are the players and the role that they have in the business you are involved in China can be.