Nation adopts policies to stabilize foreign trade by giving companies stronger support via injection of financial resources

China has adopted diversified policies to stabilize foreign trade and give stronger support to companies through the injection of financial resources.

Foreign trade companies in Guangdong province have faced cash flow difficulties due to the novel coronavirus epidemic. As an economic powerhouse in China, Guangdong saw its value of imports and exports hit 7.14 trillion yuan ($1.01 trillion) in 2019, down 0.2 percent year-on-year, accounting for 22.6 percent of the country's total, according to the Guangdong Bureau of Statistics.

The provincial banking and insurance authorities had helped the banking sector ramp up the supply of funds for foreign trade enterprises by launching innovative products and the Guangdong branch of the Export-Import Bank of China had set an anti-epidemic loan quota of 10 billion yuan, said Pei Guang, head of the China Banking and Insurance Regulatory Commission's Guangdong office.

At the end of April, for foreign trade companies in Guangdong－excluding those in Shenzhen－various types of loans increased by 29 percent from the end of April last year, and the total volume of trade financing rose 76 percent over the same period. The average lending rate dropped by about 0.4 percentage point from the beginning of the year.

The processing trade sector, which accounted for one third of the total volume of foreign trade in Guangdong, was hit hard by the contagion. In the first two months of the year, import and export volume of processing trade in the province fell by 30 percent year-on-year.

"To stabilize the processing trade sector, we helped the provincial government explore the creation of a pool of funds to compensate banks for their risks in offering financing to processing trade companies. It will give support to the defusing of nonperforming loans so that bank asset quality will remain relatively stable. By giving full play to the leverage of fiscal funds, this will drive a larger amount of credit supply to these companies," Pei said.

By the end of April, the outstanding balance of loans provided to processing trade companies in Guangdong increased by 32.9 percent from the end of April last year.

The CBIRC's Guangdong office has been promoting cooperation between banks and insurers on offering financing to exporters based on export credit insurance, which has become an important measure to stabilize foreign trade. At the end of April, the outstanding balance of export credit insurance policy-based financing in the province rose by 62 percent from the beginning of the year, Pei said.

The scope of coverage of export credit insurance also expanded further in Guangdong. The number of companies whose export credit insurance was underwritten by insurers at the end of April increased by 22 percent from April 30 last year. In the first four months of this year, that number exceeded 20,000 and the amount of risk coverage funds increased by 13 percent year-on-year to 201.5 billion yuan.

Meanwhile, the regulator urged insurers to innovate import insurance products such as launching a pilot program of tariff bonds in the field of cross-border e-commerce. It also supported China Export & Credit Insurance Corporation (Sinosure)'s Guangdong branch to launch import advance payment insurance, which effectively ensured the import of anti-epidemic supplies at the early stage of the outbreak.

As a series of policies began to take effect gradually, the value of imports and exports in Guangdong province fell 4.9 percent year-on-year in April, but the decline narrowed by 10.3 percentage points compared with that from January to February, Pei said.

"Regulators encourage banks to support enterprises via supply chain financing by stabilizing operations of the upstream and downstream supply chain companies. This is a way to ensure that the production capacity of foreign trade companies is sufficient," said Zeng Gang, deputy director-general of the National Institution for Finance& Development.

In addition, from Jan 25 to May 15, China deferred payments on 1.28 trillion yuan of the principal on loans that reached maturity for 750,000 micro, small and medium-sized enterprises affected by the contagion. Various banking institutions also helped 579,000 MSMEs postpone repayments of 55.99 billion yuan in interest on loans that reached their full terms.

The central authorities recently urged banking institutions to further delay repayments on inclusive loan principal and interest that reach maturity between June 1 and Dec 31. Large foreign trade companies that have temporary financial difficulties are also allowed to negotiate with banking institutions regarding this issue.

"The implementation of this policy will reduce financing costs of foreign trade companies to a certain extent, stabilize their capital chain and help them recover and maintain sufficient production capacity," Zeng said.

Thanks to both domestic stimulus policies and many countries' production resumption and operations in the services sector, China's foreign trade volume totaled 11.54 trillion yuan in the first five months of the year, down 4.9 percent year-on-year. The decline was the same as that in the January-April period, said the General Administration of Customs.

China will continue to enhance support for trade financing and give full play to the role of export credit insurance to help companies gain more export orders and combat economic sluggishness due to COVID-19 in other parts of the world, said Li Xingqian, director-general of the Ministry of Commerce's department of foreign trade.

The country encourages export-oriented firms to flexibly use policy tools including export credit insurance to develop their business, Li said, adding that it is necessary to further expand coverage of short-term insurance, introduce targeted professional services, improve underwriting efficiency and innovate underwriting modes to help companies strengthen export risk management and cut potential corporate losses amid the pandemic.

Government departments and policy banks will provide guidance and financial support to companies operating in cross-border economic cooperation zones and resolve urgent issues such as ensuring capital turnover and broadening financing channels to ensure smooth operations of the companies' industrial and supply chains to put their export growth on a firmer footing, he added.

Under a policy measure jointly issued by the Ministry of Commerce and Sinosure earlier this year, all service branches of Sinosure will provide full insurance coverage service, strengthen the protection of risks such as the cancellation of orders to enterprises affected by the pandemic and open up a green channel for claims settlement for companies at home, especially small and medium-sized enterprises.

The Beijing-based Sinosure is a State-funded policy-oriented insurance company providing services including medium and long-term export credit insurance, overseas investment insurance, short-term export credit insurance, domestic trade credit insurance, bonds and guarantees as well as reinsurance related to export credit insurance.

As China has recently taken a number of innovative measures such as turning this year's 127th session of the China Import and Export Fair (Canton Fair) into an online event and releasing a master plan for the Hainan Free Trade Port, the central authorities will raise credit support in key areas and promote the growth of industrial parks in its cross-border economic cooperation zones, said Zong Changqing, director-general of the department of foreign investment administration under the Ministry of Commerce.

The ministry will encourage businesses in these areas to undertake industrial transfers and diversify categories of traded goods, especially with markets participating in the Belt and Road Initiative, Zong said.

Wang Xiaosong, a professor of economics at Renmin University of China in Beijing, said even though the quality of many products manufactured by Chinese companies is excellent and the goods fully meet requirements of overseas clients, they lack their own established brands and they can only sell overseas with the help of foreign brands.

It is time for many of them to blaze a new trail by cutting some original equipment manufacturing activities and building up their own brands, Wang said, adding that when these firms are equipped with comprehensive capabilities in planning, R&D, production, marketing and personalized services, they will bring more value to the "Made in China" label.