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Sovereign Risks in Outbound Investment

China Export & Credit Insurance Corporation (Sinosure) announced on October 14 that it will release its Analysis Report on Sovereign Risks in mid-November to help Chinese enterprises manage risks when investing overseas.

The report, the first one of its kind, covers China's 60 major trading partners, including information on political and economic situations, social development status, market opportunities and risks.

The report classifies risk factors into nine categories.

Zhou Ji'an, assistant general manager of Sinosure, said that the report aims to encourage enterprises, government departments, industrial organizations and research institutes to pay more attention to the various risks involved in outbound investment, and accordingly raise their awareness of risk management.

"The report's risk rating will provide analyses and constructive opinions for outbound investment, and, it is hoped, will help the government make informed decisions when implementing its ‘go-out' strategy."

As early as 1995, International Monetary Found (IMF) had listed China as the eighth largest investing nation in the world. With foreign trade and cooperation expanding consistently in recent years, China's outbound investment is rapidly increasing while more investment projects are being initiated in more countries around the world. Currently, China has investments in more than 149 countries.

The risks triggered by international competition can be much higher than operational risks, Zhou warned. Sovereign risk is the most unpredictable and can cause huge losses. Events such as global financial crises, debt crises and trade frictions are now key factors that can result in a nation's inability to fulfill payments to creditors.

In addition, industry insiders believe that four things are likely to happen with more financial institutions entering overseas capital markets: increased capital scale, faster outflow of capital, increased virtual capital speculation, and a greater movement of international speculative capital flowing into emerging capital markets.

According to Qu Dong, vice general manager of Sinosure's risk management department, the corporation started to trace and research sovereign risks of 189 countries and regions since it was set up in 1989. It has, to date, set up one sovereign risk rating system and database.

"We expect to develop the second and third within a year, and the report will eventually cover over 180 countries and regions worldwide," Zhou said.

(China.org.cn by Tang Fuchun, October 24, 2005)

Sinosure to Promote Overseas Investment Insurance
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