Emerging markets are very risky for Chinese companies considering investing and exporting overseas.
That's according to a report by China Exports & Credit Insurance Corporation (Sinosure).
It gives an assessment on country risk, measuring such things as the average default risk on corporate payments and to what extent a company's financial commitments are affected by the local business, financial and political outlook. Sixty countries with a relatively big economic exchange with China are included in the report.
Switzerland is granted the best rating, grade one, meaning the best comprehensive environment for a business operations. The Democratic Republic of Congo and Zimbabwe were both given a grade nine, meaning doing business there is the most risky.
China's major trading partners, including the United States, Japan, Singapore, Germany and the Netherlands were given a grade two.
"Around 70 percent of the countries we give ratings to have a grade after five, which means a relatively high country risk; they are mostly emerging markets in Asia, Africa, Latin America and Eastern Europe," said Sinosure General Manager Tang Ruoxin.
But he said such ratings did not mean Chinese companies should reduce their presence in these countries. In fact, he added, these emerging markets are currently hot destinations for Chinese companies, with low operation costs and a high demand for cheap Chinese goods.
"We have rated the countries to remind companies to be alert to the risks and make full preparations," said Tang.
When companies are determined to export to a country, they can rest easier if they take out an export credit insurance; if they don't get paid, the policy will pay out.
Export credit insurance is playing an increasingly important role in Chinese exports and helping China's enterprises as they take on "going global" strategies.
In 2004, Sinosure provided insurance worth about 108 billion yuan (US$13 billion) in China's export sector, accounting for 5.5 percent of China's total volume of general trade.
"Export credit insurance has been an essential tool helping the expansion of China's foreign trade and improving the risk management of overseas investment and engineering contracts," said Chen Jian, assistant minister of commerce.
China's booming foreign trade offers huge potential for the export credit insurance industry.
As economic globalization deepens, government subsidies and other policies supporting exporters are being further restricted, meaning that export credit insurance, a widely accepted indirect means of support, is attracting more attention and proving to be an effective way of promoting trade and investment.
Sinosure expects to underwrite US$20 billion worth of exports this year.
However, that is nothing compared to China's massive trade volume, which is close to US$1.4 trillion this year.
About 12 to 15 percent of global trade is supported by export credit insurance. However, Chinese exporters, which are mainly small firms, are often unwilling to pay premiums because their profits are already wafer thin.
(China Daily December 9, 2005)