European and American buyers reduce and cancel orders, Zhejiang enterprises’ export insurance policies increase by 50%
Mr. Cheng is the person in charge of a chemical pharmaceutical export company in Hangzhou. He has been doing foreign trade business for many years. He did not expect that he would stumble on a few tons of pharmaceuticals this year. In September, the company signed a batch of orders with an Indian buyer. The price at that time was US$70/kg. Unexpectedly, within a month after the goods arrived, the price dropped to US$45/kg as international oil prices plunged. , the other party insisted on returning the goods. Fortunately, Mr. Cheng had insured this order with China Export and Credit Insurance Corporation Zhejiang Branch (hereinafter referred to as Zhejiang Credit Insurance). Through the coordination of Zhejiang Credit Insurance, the dispute was finally resolved a few days ago: the other party bought it at the current price, and Zhejiang Credit Insurance compensated 80% of the difference.
“I didn’t expect that oil prices would change so much and the impact would be transmitted so quickly.” Mr. Cheng, who had just recovered from the crisis, was still frightened. Since the second half of this year, the financial tsunami in the United States has intensified. In this financial turmoil, foreign trade exports, one of the troika that drives Zhejiang’s economic growth, are “gasping” and many companies are deeply involved.
100 foreign buyers, 4.5 risks
Export loss reporting rate frequently refreshed
“We have received several more cases of export companies reporting losses today, and the problem is still gradually exposed. The US financial tsunami It is the key reason for the sharp increase in export risks for Zhejiang enterprises.” said Chen Feng of Zhejiang Business Management Office.
The following data may indicate that the risk of the financial crisis to our province’s export industry has arrived.
In the first 10 months of this year, Zhejiang Sinosure received 357 cases of loss reports under export items, with a total amount of US$59.68 million, a year-on-year increase of 65% and 72% respectively, and the loss report rate reached 1.7%. This means that among the exports insured by Zhejiang Credit Insurance, there is a risk of US$17,000 for every US$1 million of insured amount. The number of reported losses reached 4.5%, which means that 4.5 out of every 100 foreign buyers insured by Zhejiang Credit Insurance were at risk.
These are just the tip of the iceberg of risks to our province’s exports. Zhejiang Credit Insurance insured US$3.44 billion in exports in the first 10 months, accounting for only 4.4% of our province’s general trade exports.
Risks are increasing. According to reports, in the past five years, among the exports insured by Zhejiang Credit Insurance, the amount reported loss rate has averaged 1.3%, which can basically represent the overall level of bad debt rate in our province’s general trade exports. Since 2019, this data has been continuously refreshed. The loss reporting rate in the first half of this year has reached 1.6%. Especially since September, the amount reporting rate has risen sharply, reaching 2% in September and reaching 2% in October. An unprecedented 2.3%. “It has increased by 77% compared with the average level in the past five years, which means that the foreign exchange collection risk of our province’s export enterprises has increased by 77%.” said the relevant person in charge of Zhejiang Credit Insurance.
The trouble caused by the plummeting commodity prices
Sincere buyers suddenly refused to pay
From a high of 147 US dollars/barrel to nearly 60 yuan/barrel, international crude oil fell by as much as 65%, which also caused A series of chain reactions. At the same time, under the shadow of the economic recession, the prices of bulk commodities such as steel, gold, aluminum, and copper in the international market have recently experienced unusually large fluctuations. They rose sharply and then plummeted. The market risk of price fluctuations has caused buyers’ willingness to accept goods to drop to freezing point and rejection. The risk has risen sharply.
Since September, China Credit Insurance Corporation has received a total of 9 cases of damage reports for bulk goods export products such as steel and aluminum. The average reported loss amount per case is 2.8 million US dollars. The reason for the damage is that the buyer refuses to accept the goods or The issuing bank maliciously picks up discrepancies to force exporters to significantly reduce prices and default on payment.
The sharp drop in international bulk raw material prices has quickly spread to its downstream industries. For example, the plummeting price of oil has led to the rapid decline of pharmaceutical and chemical products. Since October, Zhejiang Xinbao has received many cases of reported losses of pharmaceutical and chemical products, including 11 cases in India alone, with the amount of reported losses reaching US$2.06 million.
At the same time, sharp fluctuations in exchange rates affect buyers’ willingness to receive goods and pay. A textile company in Shaoxing that exports to Brazil recently suffered an export loss of nearly 500,000 US dollars because the Brazilian real has depreciated rapidly, as much as 45%. The contract is priced in US dollars, which means that buyers need more local currency to exchange for purchases. For the same amount of dollars, the weak buyer chose to unilaterally cancel the contract. We learned from Zhejiang Xinbao that the euro, pound, Australian dollar, etc. have been depreciating one after another. This situation has happened frequently recently. Some buyers with poor reputation or weak strength require exporters to reduce prices or even simply breach the contract.
The “butterfly effect” troubles Zhejiang enterprises
Survival crisis breeds overseas “laity”
“The financial crisis is deepening and spreading to the real economies of various countries. For our country, the export industry is the first to bear the brunt.” Yesterday at the 2019 Overseas Market Credit Risk Analysis Conference, Zhou Jian, deputy general manager of China Export and Credit Insurance Corporation, emphasized several times that the company is a national policy insurance company specializing in enterprise export risk management.
Zhou Jian said that after the financial crisis broke out, some European and American buyers went bankrupt or suffered losses and were unable to pay for goods. On the one hand, bankrupt or loss-making European and American companies are unable to pay for goods and refuse to pay; on the other hand, surviving companies will reduce purchases from China and imports in order to survive this crisis. These impacts on Zhejiang’s foreign trade are like the “butterfly effect” in meteorology. Small changes in initial conditions can drive a chain reaction of the entire system..
Many export companies in Zhejiang have encountered this “butterfly effect”. Not long ago, an Italian buyer purchased products worth more than US$1 million from a leather factory in Wenzhou on credit. After the payable date expired, the buyer defaulted on the remaining payment. The reason is that due to the financial crisis, products were overstocked in warehouses and unable to be sold, and the company was on the verge of bankruptcy. When buyers are unable to absorb the resulting losses themselves, they ultimately choose to pass them on to exporters. Affected by the decline in the U.S. new car sales market, buyers have difficulty in cash flow. A large listed company specializing in auto parts defaulted on payment of nearly US$5 million to a Zhejiang exporter.
The financial crisis has caused a general lack of liquidity in banks, and companies that rely on bank loans are suffering from a serious survival crisis. Two companies in Hangzhou and Jiaxing recently ran into the same “old man”. The other party is a leading company in the Italian clothing wholesale industry with an annual sales volume of more than 50 million euros and has never had a bad credit record. After the loan expired in August this year, the bank no longer extended the loan, and the two companies in Zhejiang became direct victims.
Survival in the crisis
“Export insurance” policies soared by 50%
The financial tsunami that broke out in the United States continues to spread to the European Union. How can Zhejiang export companies, which mainly focus on Europe and the United States, avoid the crisis? Relevant people from the Provincial Department of Foreign Trade and Economic Cooperation said that the impact is still gradually emerging, but one thing is very clear: All companies with low added value of products and low technological content will suffer a greater impact; while companies with obvious brand advantages and product add-ons will suffer a greater impact. Companies with high value will be less affected, and companies in the industrial chain and midstream will be relatively less affected.
Zhang Handong of the WTO International Trade Research Center suggested that relevant enterprises pay close attention to the new developments of the financial crisis, especially the specific impact on various countries and industries. We should strengthen contact with overseas customers at ordinary times, make full use of professional credit investigation channels, internal information exchange within the industry, etc., to track the credit status of overseas customers and the status of accounts receivable. If there are any abnormalities, we must intervene as soon as possible and deal with them as soon as possible. The market should also be as diverse as possible. Currently, those most affected by the financial crisis are the United States, Europe, Japan and other developed countries with developed financial industries and highly open financial markets. However, some countries and regions with underdeveloped financial industries and incomplete market liberalization are affected. The impact of the positive impact of the financial turmoil will be much smaller, and they still have strong market demand for Chinese products. Judging from the underwriting situation of Zhejiang Sinosure in the first ten months, the loss reporting rates of most countries in Latin America, Africa, and the Middle East are within a reasonable range.
In addition, the settlement method should be chosen correctly. Sinosure recommends that a deposit can enhance the buyer’s willingness to pay. For products that face significant price fluctuations and buyers whose local currency exchange rates face significant fluctuations, charging a certain percentage of advance payment before export can increase the buyer’s default costs and reduce the risk of rejection when product prices fall significantly or the local currency depreciates significantly.
“Generally speaking, Chinese export companies currently face risks and have a single response method. They often think they are unlucky, and the results of several years of hard work have been wiped out.” Zhou Ji’an said that it is safe, convenient and effective for companies. The way is still to use financial instruments to control risks and seek risk transfer through authoritative and professional credit insurance.
Now, Zhejiang companies with a keen sense of the market are beginning to take precautions and buy insurance for exports. “Many companies had no awareness of insurance before and thought it was unnecessary. Recently, many companies have taken the initiative to come to us for consultation.” The person in charge of Zhejiang Credit Insurance said that this year, more than 600 entrepreneurs came to Zhejiang (excluding Ningbo) to buy insurance, compared with last year’s number. The number is only over 400, an increase of 50%. AAKY,7II56U65
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