Issue 444, Market, Page 21
November 16, 2009
Translated by Liu Peng
Original article: [Chinese]

China's State Council recently approved plans to reform both the shareholding and management structure of China Export and Credit Insurance Corporation (Sinosure), the country's sole policy-oriented insurer, the Economic Observer has learned.

According to the proposed scheme, Sinosure will remain a wholly-state owned insurance agency and investment in the company will be restricted to funds from state agencies. However, the commercial insurance activities of the insurer will be split off from its core task of providing export and import insurance to international trading companies at preferential rates.

Central Huijin Investment Company (Huijin), the domestic investment arm of CIC (China Investment Corporation), the country's ＄300 billion sovereign wealth fund, will inject 4 billion US dollars into Sinosure by the end of this year, the EO learned. The investment marks a diversification of shareholding in the loss-making corporation, which is currently 100% owned by the Ministry of Finance.

The move will not only enhance Huijin's role as a government investment vehicle with large stakes in key financial institutions, but also provide support to China's struggling export sector.

In order to raise funds for the investment, Huijin plans to issue bonds worth 80 billion yuan (11.7 billion US dollars) in the interbank market, a portion of the funds raised will also be used to help Huijin complete its injection of 12 billion US dollars into the Export-Import Bank of China.

When asked why Huijin decided to sell bonds in order to recapitalize Sinosure, an inside source revealed there was no better alternative.

Aside from additional investment, a source from Sinosure revealed the the central government would also start reforming the administration and management of the insurer.

An insurance specialist noted that part of the plan was to separate Sinosure's policy-oriented services out from its much smaller commercial insurance business, which is mainly involved in selling credit insurance for domestic trade deals.

Sinosure's short, medium and long-term export credit insurance business have always been policy-oriented. Despite signs that the State Council was receptive to recent requests from other insurers to open up the short-term export credit insurance market to more competition - a circular issued by the State Council in early December last year included a pledge to "Conduct research into opening up the short-term export credit insurance market and by allowing commercial insurance companies to compete in the market, boost the country's exports" - the reform plan makes clear that Sinosure will remain the sole player in the field.

The fact that many commercial insurers retreated from the international short-term export credit market in the wake of the global financial crisis, is seen as having influenced this decision.

A source from Sinosure revealed that during the post-crisis era, the state was expecting the company to step in and start accepting export credit insurance applications that no commercial insurer would accept.

An inside source also revealed, that after the decision to commercialize the China Development Bank, formerly one of China's three policy-oriented banks, the central government had intended to look into the feasibility of one-by-one, gradually restructuring the three remaining policy-oriented financial institutions - The Export and Import Bank of China, Sinosure and the Agricultural Development Bank of China.

However, after the outbreak of global financial crisis, the central government decided to bring forward the planned restructuring of both the Export and Import Bank of China and Sinosure and to implement them simultaneously.

Furthermore, in contrast to earlier reforms, the restructuring has not been led by the corresponding authority at the central level. Under normal circumstances, the China Banking Regulatory Commission would have been expected to be responsible for restructuring the bank and the Ministry of Finance would be expected to take charge of Sinosure's restructuring.

However, the State Council has ordered the central bank to put together a special group, consisting of members from various ministries, to research the restructuring of the two institutions.

The above source believed that this decision not only involved a recognition that the central bank would be more impartial in its deliberations, but in the wake of the severe lessons plummeting exports, it might also reflect a new found awareness among policymakers of both the way in which these two institutions can be used to implement policy and also of the mutually enforcing nature and complementarity of their actions.

Links and Sources
Sinosure: Official Site
Export-Import Bank of China: Official Site
Agricultural Development Bank of China: Official Site