In Depth: China’s Exporters Get More Help to Withstand Trump’s Trade War

By Qing Na, Ding Feng, Wang Shiyu, Wu Xiaomeng, Quan Yue and Wu Yujian

Uncertainty over the outlook for China’s exports amid the tariff war with the U.S. has prompted the Chinese government to step up support for two trade credit insurance programs as part of its strategy to help exporters weather the shock.

Beijing and Washington have now moved to de-escalate their dispute, which had seen the U.S. impose additional levies of as much as 145% on imports from China. After two days of talks in Geneva, senior officials from the two countries jointly announced on May 12 that most of the additional tariffs they had imposed on each other would be suspended for 90 days or removed, while negotiations continue to resolve a string of economic and trade issues between the two countries.

Despite the initial agreement, the lingering impact of the tariffs and the difficult talks ahead to resolve the disputes dogging the Sino-U.S. trade relationship mean the external environment will likely remain unpredictable and suggest the Chinese government won’t let up on its support for exporters.

Help for exports

Credit insurance has played a vital role in stabilizing the export sector in the first few months of this year, Li Yunze, head of the National Financial Regulatory Administration (NFRA), said at a press briefing with two other financial regulators on May 7. He spoke ahead of the first official bilateral trade talks in Switzerland since U.S. President Donald Trump’s announcement of “reciprocal tariffs” on April 2 that eventually pushed additional levies on Chinese imports to as high as 145%.

The NFRA is China’s top financial regulator, whose job is to oversee banking, insurance and other financial sectors. A key focus for the agency now is to promote the development of insurance products to help exporters mitigate risks stemming from trade uncertainties, Li told the briefing. He highlighted two tools: export credit insurance, a risk management tool that protects exporters against non-payment by foreign buyers due to commercial or political risks, and domestic trade credit insurance, which protects sellers in domestic transactions against non-payment by buyers for reasons such as bankruptcy or payment delays by local governments.

The expansion of these programs is part of a package of financial support measures unveiled by regulators at the briefing. They include lowering banks’ reserve requirement ratio for the first time since September and cutting the central bank’s key policy interest rate by 10 basis points to a record low.

The NFRA is “studying a series of policies enabling the banking and insurance industries to safeguard the foreign trade sector,” Li said. “[We will] optimize export credit insurance regulatory policies, improve underwriting capacity (of insurance companies), provide preferential rates, implement swift claims processing and compensation, and stabilize the confidence of companies in accepting orders and exporting,” Li said.

The coverage amount of short-term export credit insurance jumped 15.3% year-on-year in the first four months of the year, playing a crucial role in stabilizing foreign trade, he said.

Export credit insurance has become more popular in recent months in localities with high exposure to exports, as the trade conflict between China and the U.S. has deepened.

The eastern city of Yiwu, home to one of the world’s biggest wholesale markets for small goods, is a major supplier of holiday decorations and plastic products to the U.S. The local government announced in late April that it would subsidize the insurance premiums local companies pay for short-term export credit insurance by as much as 80%, as part of 10 measures to promote high-quality development of the private economy.

Similar measures were announced last month by the government of Shenzhen, which has been the Chinese mainland’s top exporting city for 32 consecutive years. Local authorities included export credit insurance in a package of 10 policies to support foreign trade and to help exporters worry less about non-payment when trading with U.S. buyers.

The local authorities will offer more support to companies that ship goods to the U.S. by working with policy-backed export credit insurer China Export and Credit Insurance Corp., they said in a statement. The collaboration aims to improve the efficiency of claims processing, so that companies get paid in full faster when something goes wrong. Meanwhile, small and midsize foreign-trade enterprises who exported less than $8 million of goods last year will receive export credit insurance at no cost, according to the statement.

Domestic transition

The NFRA is also working to establish a domestic trade credit coinsurance scheme to help exporters navigate the transition from supplying goods destined for overseas to selling into the domestic market.

A coinsurance scheme involves multiple insurance companies jointly underwriting policies, creating a risk-sharing pool that spreads the financial liability for any losses. It also allows insurers to combine resources to insure larger deals and improve claims handling.

Exporters trying to shift their business to the domestic market face new risks, such as unfamiliar buyers, longer payment terms, and a reluctance among banks to accept domestic receivables (money owed by customers) as collateral for loans. The scheme will help them mitigate risks of non-payment by domestic buyers, facilitate working-capital loans, and give them more confidence to grow their businesses on domestic e-commerce platforms such as Tmall and Douyin.

“This mechanism is crucial for the development of startup industries and sectors with high uncertainty,” Li from the NFRA said at the press briefing.

Insurers will be encouraged to launch insurance products tailored to individual businesses, as well as expand coverage and increase limits on domestic trade insurance, which will all help boost domestic sales, Li said.

Domestic trade credit insurance is a relatively immature business in China, but demand is growing as over the past two years, businesses have seen an increase in the amount of money they are owed by customers, especially in industries with long payment terms such as energy, construction and manufacturing.

The government has been developing domestic trade credit insurance for several years to help drive the dual circulation strategy, a concept introduced by President Xi Jinping in 2020 to rebalance the economy and make it less vulnerable to external shocks by prioritizing domestic consumption and innovation — internal circulation — while maintaining selective global integration — international circulation — to promote mutual reinforcement between the two.

In one of the latest moves, the National Development and Reform Commission in December issued guidelines to spur the sector’s growth by providing insurance companies with more support, calling for efforts to improve their underwriting and claims efficiency, and to explore including domestic trade credit insurance as a factor in their supervision and evaluation metrics. The guidelines also instruct local authorities to build special platforms, both online and offline, to promote domestic trade credit insurance, organize enterprises to connect with insurance companies, and encourage banks to market such products.

This type of insurance will encourage companies in the export industry to explore the home market and expedite the integration of domestic and foreign trade, Li said.

Contact reporter Qing Na (qingna@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

Image:  Hasim Ramle – stock.adobe.com