Insurance fund increase considered
By Dai Yan (China Daily)
Updated: 2004-05-13 06:23

Vice-Minister of Commerce Yu Guangzhou has revealed that the central government is considering offering increased support to export credit insurance on farm produce.

Yu said the central government is looking at raising the share of government funding to the premium.

The central government currently covers 20 per cent of the premium for agricultural export credit insurance, compared to between 50 and 80 per cent in developed countries, Yu said.

This small amount means export credit insurance cannot be used to its fullest extent. It is widely used throughout the world to support exports, Yu said.

Chinese farm produce exporters are being encouraged to use more export credit insurance to offset risks, especially increasing losses caused by technical barriers to trade.

Liu Yongxin, executive vice-president of the China Export & Credit Insurance Corp (Sinosure), said only 200 of the over-10,000 farm produce exporters are using export credit insurance.

Liu, from China's only official export credit agency, urged more farm produce companies to use the policy credit to offset the risks in exports given the rising uncertainties in farm produce trade.

Xia Youfu, a professor from the University of International Business and Economics, said that farm produce is actually the biggest victim of trade barriers.

China's farm produce exports stood at US$21.43 billion last year - a year-on-year increase of 18.1 per cent - with imports at US$18.93 billion, a massive rise of 52.1 per cent.

Xia pointed out that 90 per cent of the country's exported farm produce and foods encountered technical barriers, resulting in losses of US$9 billion.

The need for export credit insurance, which is allowed under World Trade Organization (WTO) rules, is increasing rapidly after China lifted all subsidies on farm produce exports after its WTO accession, Xia said.

But Liu admitted that Chinese companies, including farm produce exporters, remain woefully unaware of how to use the new insurance.

Sinosure was set up in December 2001, bringing together businesses which had previously belonged to the People's Bank of China and the China Export and Import Bank.

Sinosure saw its insured business jump by 100 per cent last year to US$5.5 billion, but this only accounts for 3 per cent of China's general trade during the same period.

That rate, also known as the penetration rate that measures the support of export credit insurance to the growth of trade, is far below the global average of 10 per cent.

Liu said that Chinese exporters, which are mainly small firms, are unwilling to pay the premium because their profits are already wafer thin.

But Liu said services and products are being offered in a bid to change this situation.

Wang Xiulin, president of Jinlin Deda Co Ltd, one of China's major chicken exporters, said the premium had paid off for his firm.

The company immediately benefited when it was paid by Sinosure for its US$10 million loss incurred during the bird flu outbreak earlier this year, Wang said.

The company began to use the insurance last October after it suffered total losses of US$3.5 million resulting from trade barriers in Japan, South Korea and Russia.