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China – “trade war” and its impact on credit insurance

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The photo above shows exactly the competitive edge of China – “a lot of people”.

 

China is the second largest economy in the world and as such, its economic and trade environment is always at the focus of economists.

 

Recently however, China has found itself even more at the spotlight than usual, with the hottest topic for anyone with a remote interest in economy being the ongoing “trade war” between China and the USA.

 

There is an ever increasing number of different analysis and forecasts on the topic, with most of the predictions being quite unfavorable to China in case of a lengthy trade war. Still, the only common thing that these studies seem to share is that apparently no one knows for sure, the depth and the duration of the potential impact on both economies. Thankfully, as of late the tension seems to have been soothed a bit, with both parties agreeing to delay the increases on duties for three months, so that they will have time to negotiate some possible agreement to avoid a deepening crisis.

 

On our end, we neither, cannot see how serious the economy is being affected by this “trade war”, at least not from the official statistics.  But the general sentiment is that the hit is quite a strong one.  Quite a number of factories and suppliers to the US are facing serious difficulties, and a lot of purchasing contracts are now going to neighboring developing countries such as Vietnam, Bangladesh, Sri Lanka, etc., where the labor costs is even lower than China.

 

Reports indicate that most underwriters are now reducing their credit portfolio and exposure in China, which reflects the sector’s attitude to the increase in the potential risks.

 

Although the current risk appetite of the underwriters seems to be lower, the potential for market growth in credit insurance remains very strong, as the percentage of trade now being covered by insurance is still very low, at single digit.

 

All the major global underwriters are represented in China but they do not issue their own policies. This is mainly due to both China being an “admitted market” with a difficult to get nationwide insurance company license, and the costs of operating in the whole country being very high.  As such, Euler Hermes, Atradius and Coface are all working through their own fronting partners to issue their policies, and local players include Sinosure and PICC, where Sinosure is the Export Credit Agency of the country.

 

Lately there have been news that Allianz became the first foreign insurance company allowed to be wholly owned by foreign enterprise. This does not exactly reflect the facts as Allianz is the first wholly foreign owned insurance “HOLDING” company.  In fact, AIA and AIU (now AIG) have been wholly owned foreign insurance companies for years, and Zurich, Starr and recently AXA (they bought back all the local share a month ago) all benefit from the same status.

 

Should you have the interest to knowing more about China and HK, please contact:

 

Beijing Nova

Conrad Wong

Managing Director

+86-136-6000-8073

conrad.ck.wong@nova-insure.com

 

All the written material is the property of Nova Insure, and this article has been written by Conrad Wong .