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China’s vow to boost the “scale and coverage” of export credit insurance will likely focus on technology exports and overseas investments, experts say, as Beijing works to transform its trillion-dollar Belt and Road Initiative (BRI).

In late November, China’s vice minister of commerce Wang Shouwen announced that the country would be rolling out support measures to stimulate its foreign trade sector amid mounting global challenges.

China is facing the prospect of significant tariffs on all exports to the US when President-elect Donald Trump takes office in January and its domestic economy has stuttered this year in the wake of a property crisis.

“We will enhance financial support and expand the scale and coverage of export credit insurance,” Shouwen said at a press conference, according to reports from state news agency CGTN.

He also vowed to boost underwriting for “small giants and hidden champions” and increase financial support for SMEs involved in trade.

There is currently limited information on Beijing’s plans to scale up export credit insurance and how these might take shape.

“It is not unusual for the government to announce the policy direction first, and then later, provide the details,” says Kanyi Lui, a Beijing-based partner and head of China at law firm Pinsent Masons.

But analysts expect China will lean on its export credit agency (ECA) Sinosure to boost Chinese technology exports and investments in factories overseas, thereby lessening the impact of trade frictions.

“China is trying to hedge its bets,” says Gabriel Buck, managing director of advisory firm GKB Ventures, who points to the specific reference in the announcement to “small giants and hidden champions”.

“The government can see uncertainty going forward, so it would be much better to spread their risk in millions of baskets by supporting SMEs,” Buck tells GTR. “These firms are small in size but very agile and with greater flexibility to adapt to market conditions.”

Buck highlights OECD data, which shows there are over 200 million Chinese enterprises and more than 95% of these are SMEs.

According to Sinosure’s annual report, it underwrote US$928.6bn across all of its product types last year, and approximately US$166.5bn of this overall total was allocated to SME exporters.

Short-term export credits continue to account for the bulk of Sinosure’s portfolio, measuring US$770bn in 2023, its annual filings show.

However, Lui expects Sinosure will also seek to grow usage of its investment insurance product, which to date has remained a relatively small part of the ECA’s business.

Sinosure’s overseas investment cover has expanded in recent years but such activity still only reached US$0.7bn, while its medium to long-term (MLT) export credit business grew by 63.8% YoY to US$15.2bn.

“For the first time in recent history, Chinese manufacturers are moving their factories outside en masse,” Lui tells GTR.

“Firms which have moved offshore won’t be exporting from China, so short-term export credit insurance is probably going to benefit less. Most likely, Sinosure will be taking a much closer look at supporting Chinese investments overseas.”

He expects Sinosure will largely seek to cover risks for investors in developing countries, “including Cambodia, Laos, the Democratic Republic of the Congo, Equatorial Guinea, or Indonesia”.

He notes there will be a particular emphasis on offshoring manufacturing capacity in the technology sector.

China is working to cement its position as a leading manufacturer and producer of emerging technologies, cornering the photovoltaic solar market and boosting production of electric vehicles. According to the World Economic Forum, it exported 1.2 million EVs last year, up 77.6% YoY.

 

Small and beautiful

Broadly, experts say China is looking to develop a far more cooperative approach when financing overseas projects.

In the heyday of China’s BRI infrastructure splurge, Sinosure extended cover worth over US$20bn annually for large-scale infrastructure in regions such as Sub-Saharan Africa and Latin America. Altogether, the ECA estimates it covered deals worth over US$2tn under the BRI, since its launch in 2013.

Sinosure’s MLT export credit activity peaked in 2017, rising to US$24bn, think tank ODI says in a December report.

By backstopping trillions of dollars in loans from commercial Chinese banks and state lenders such as China Export-Import Bank, Sinosure enabled the development of projects such as ports, roads and coal power plants.

Yet such activity has left China exposed to rising debt in regions such as Africa and China’s banks have slashed infrastructure lending, instead opting to focus on trade finance and commercial investments.

According to Lui at Pinsent Masons, Chinese financial institutions would previously look to act as the sole lender on a mega-infrastructure project and may have tapped Sinosure for cover.

These same lenders are now looking to partner when financing foreign projects, and there is “a lot more appetite” to involve European banks and multilateral institutions like the World Bank’s Miga and the African Development Bank, as well as other ECAs such as the UK Export Finance”, Lui tells GTR.

GKB Ventures, which specialises in structuring ECA-backed transactions for emerging market borrowers, often in Sub-Saharan Africa, is likewise seeing increased interest from potential clients in China.

Buck tells GTR he is having discussions with small and large Chinese exporters that are looking to “widen their pool of liquidity, in addition to the support they have had from Sinosure and Chinese banks”.

President Xi Jinping outlined this novel approach at a Belt and Road Symposium in 2021 when he urged Chinese firms to focus on “Xiaoermei” – translated as “small and beautiful” – projects.

A “strong growth” in solar projects that require less investment than coal, hydro or gas power plants is an example of “Xiaoermei in practice”, Lui said in a research note in November.

In the note, he said the BRI had entered its “next phase” and that China’s financing approach is also shifting away from bilateral loans.

 

“Full confidence”

In the wake of Beijing’s export credit announcement and President-elect Trump’s pick of Scott Bessent as Treasury Secretary, analysts say the hit to China’s GDP may be less severe than initially thought.

Carlos Casanova, an economist at UBP, has disputed forecasts of a 2% drop in China’s GDP due to Trump’s tariffs.

“These estimates appear exaggerated,” he said in a November research note. “Considering price elasticities and recent support for exporters, we anticipate a more manageable impact on Chinese GDP around 0.2-0.4% range.”

China’s President Xi said this week that he has “full confidence” the country will meet its 5% GDP target this year.

At a gathering of multilateral institutions including the IMF and the World Bank, he said China will continue to play its role as the “biggest engine of world economic growth”, state media reported.