Fighting Back Against Fake (and Real) Sinosure Claims: A Primer

If your company buys products from China, you’ve probably heard of Sinosure, but you probably do not know much about it. This Chinese state-owned export credit insurance company actively pursues overseas companies for alleged unpaid debts on behalf of Chinese manufacturers.

In this post, we’ll explain what Sinosure is, how its approach has changed recently, and most importantly, how your company can respond if Sinosure comes calling.

1. What is Sinosure?

Sinosure, or the China Export and Credit Insurance Corporation, is a Chinese governmental entity that insures China’s exports. It compensates Chinese manufacturers when foreign buyers allegedly default on payments.

Essentially, Sinosure subsidizes Chinese companies and then aggressively seeks reimbursement from overseas companies. It often hires debt collectors and law firms to chase foreign companies for money supposedly owed to its insured Chinese manufacturers.

2. How Sinosure Pursues Claims

Previously, in a typical Sinosure case, here’s what would happen:

  • A foreign company pays a Chinese manufacturer an advance for a large order. The rest is owed upon delivery.
  • The shipment arrives, but the quality is terrible and unusable.
  • The foreign company refuses to pay the balance owed and requests a refund or new products.
  • The Chinese company goes silent or tries to negotiate. Then Sinosure jumps in.
  • Sinosure demands payment through threatening calls or letters. It threatens to sue the foreign company in China or its home country.
  • The Chinese manufacturer falsely claims it did not contact Sinosure and that the foreign company should negotiate directly with it instead.
  • Sinosure persists with increasing aggressiveness.
  • The foreign company discovers Sinosure blacklisted them from buying anything else from China on credit.
  • Left with few options, the company contacts lawyers to reach a settlement, but finds Sinosure is inflexible.

3. Sinosure’s New and Even More Aggressive Debt Collection Tactics

The economic downturn in China and the pessimism of many Chinese entrepreneurs have led to a surge in Sinosure matters, and a shift in their typical pattern. My law firm’s Sinosure lawyers have seen two major changes have occurred in how Sinosure operates:

1. Pursuing undelivered goods: Sinosure now demands payment not just for delivered items, but also for goods the Chinese company never even shipped. For example, if a foreign company cancels future orders due to the economic downturn, Sinosure wants them to pay for those cancelled products anyway, whether the Chinese factory agreed to the cancellation or not.

2. Resurrecting old claims: Sinosure is reviving old disputes that were resolved years ago and demanding the amounts supposedly still owed. Foreign companies are caught off guard by these zombie debts. And here’s the thing: it’s not even clear that it is the factories that are resurrecting these old claims. In many instances the factories claimed that Sinosure’s “new computer system” discovered the debts and if the claims are not pursued, the factory will lose all insurance coverage.

If you are keeping up with what is happening in China, you know that the Chinese government is prioritizing national security over its economy and especially over doing business with foreign companies. For more on this, check out the following:

a. Chinese Government Raids and Shuts Down a Well-Known American Business. This is a REALLY BIG Deal.

b. Due Diligence in China Just Got a Lot Harder: Now What?

c. China’s Anti-Espionage Law Raises Foreign Business Risk

The Chinese government’s growing distaste for business is equally true of Sinosure.

Sinosure is a governmental amalgamation of various regional Sinosures, each with its own fiefdoms. For nearly two decades, I have been recording how the different Sinosures deal with foreign companies and the one clear thing I can tell you is that they have gotten considerably tougher/more aggressive with foreign companies.

In past years, our lawyers would explain to companies with Sinosure issues how Sinosure has the ability to seize assets (including IP) in China and to put the squeeze on foreign companies and personnel in China. We would then explain the various ways Sinosure pursues foreign companies and then we would assess the likelihood of each of these things actually happening. We would then explain how Sinosure’s idea of a settlement is that the foreign company pays the $1.5 million it owes in two weeks, rather than tomorrow. Most importantly we would discuss how our Sinosure lawyers could help them, and how the best tactic for dealing with Sinosure is usually (but not always) to set up various protections and then not pay Sinosure anything at all. We would then talk about how slow and dumb Sinosure is, and how it usually takes it months to do anything, and how by then we would have already blocked it from doing anything.

But Sinosure has changed. Sinosure is now encouraging (and almost certainly funding) its insureds (the Chinese manufacturers to which the foreign company owes the money) to sue the foreign company in its own country. Equally importantly, it is suing the foreign company product buyers quickly in China and threatening to take those Chinese court judgments to U.S. or EU courts to be enforced pursuant to international law.

Equally importantly, Sinosure is now highly computerized, and it is now seizing foreign company IP in China and foreign company payments to Chinese suppliers before it even contacts the foreign companies regarding alleged debts, and oftentimes before the foreign company even realizes there is a Chinese company claiming to be owed any money. In just the last year, Sinosure has become highly computerized and far more sophisticated at searching foreign country databases.

Sinosure is also taking on the role of government “provider” to Chinese manufacturers in trouble. The Chinese government knows foreign companies are moving their manufacturing out of China and in an effort to assist Chinese factories that are hurting, Sinosure often pays these factories in full for their losses and seeks fast reimbursement from the foreign companies that allegedly necessitated these payments.

All of this has changed how we deal with Sinosure cases and it has also caused us to initiate what we have taken to calling “Sinosure audits.” Our Sinosure audits essentially consist of our working to help foreign companies reduce their Sinosure risks before they become a business-threatening reality.

4. How You Can Fight Back Against Sinosure

Given Sinosure’s increasing aggression, how can your company respond if Sinosure comes after you? Here are a few (of many) actions we typically recommend:

a. Do not ignore Sinosure.

b. Immediately consult a lawyer who has substantial experience dealing with Sinosure.

c. Never concede to Sinosure that you actually owe anyone in China anything at all. If you do this, it will make it faster, easier, and cheaper for Sinosure to seize your company’s assets in China and around the world. Sinosure will do its utmost to get you to concede on some amount, but do not do that.

d. Protect your assets proactively beforeSinosure freezes them.

5. Conclusion

Dealing with justified and unjustified Sinosure claims is a complex process that requires experience and advance preparation. Do not wait until Sinosure freezes your assets or destroys your business; you need to be proactive in protecting your company. Seek out Sinosure legal experts right away if you receive any communication from Sinosure, or even if you merely have an inkling that you might be having China manufacturer problems. With the right guidance, you can avoid getting bullied into settlements that harm your business.

Our typical client does not pay Sinosure or its alleged China factory creditors anything at all.

For more on Sinosure, check out China Sinosure as Existential Threat and Navigating Sinosure Claims Just Got Tougher.