Sinosure Claims: Protect First, Negotiate Later (If You Must)

Our firm has handled more than 100 Sinosure matters. In none of them has Sinosure reduced the principal amount it demanded. Not once, not ever, not by one dollar. I lead with this because foreign companies almost always ask us the same first question: Can we settle this for less?

Sinosure is China’s state-owned, policy-driven export credit insurer. Its job is to encourage Chinese exporters to ship on credit. That is a national trade objective, not merely an underwriting decision. A commercial insurer will accept less when doing so produces a better financial result than continuing to fight. Sinosure answers to a government that measures success by whether Chinese exports get paid for. That difference drives everything else in this post.

Based on 25 years of dealing with the Chinese government and with Sinosure, I believe one of their goals is to harm the United States, Canada, and the United Kingdom. One case illustrates this better than any other. Our client was a very long established, large and well-known American company. During COVID, its sales soared. To make sure it had enough inventory, it placed duplicate orders with multiple factories.

When sales returned to normal after COVID, the company found itself with far too much inventory and too little cash to pay its four largest factories. It owed each of them more than $10 million. Everyone involved saw the same sensible solution. Give the company a year or two to sell through its inventory and pay the factories. The company would survive, the factories would get paid, and all four factories would retain a major long-term customer. The factories were all but begging Sinosure to approve a deal.

Sinosure refused. It warned the factories that if they settled, it would never pay any claims related to our client. It also refused to allow any meaningful extension of time or reduction in the amounts owed.

Our client eventually had no choice but to file for bankruptcy. As far as I know, neither the factories nor Sinosure ever recovered a dollar. My client was destroyed, and all four factories were harmed.

I firmly believe Sinosure preferred that result because eliminating a major American company created an opening for Chinese companies to capture a substantial portion of its former sales. China benefited, the United States was injured, and the factories Sinosure was supposedly protecting became collateral damage. This remains the clearest example I have seen of Sinosure choosing Chinese national policy over commercial logic.

Sometimes the underlying debt on which Sinosure seeks collection is legitimate. More often, however, the Chinese factory shipped defective, late, or nonconforming products. In other cases, the buyer never ordered or accepted what the factory claims it sold. Sinosure does not care. It just wants to collect.

Whatever happened, the buyer needs to act quickly. It should preserve the evidence, stop uncontrolled communications, identify everything it owns or depends on in China, and prevent anyone connected to the company from traveling there. What it should almost never do is spend the next several months trying to secure a discount from Sinosure.

Why Sinosure Does Not Negotiate Like an Ordinary Insurer

Prospective clients are always asking me what happens when we give Sinosure clear evidence that its demand is wrong. Surely, they say, someone at Sinosure will review the documents and reduce the claim.

Sinosure or its collector might drop questionable interest, penalties, or collection costs, or extend a payment deadline by 30 days. What it does not do is reduce the principal amount owed.

Most companies expect a conventional commercial negotiation. They assume a $500,000 demand from Sinosure might eventually become a $350,000 payment now and another $100,000 six months later because some immediate recovery is better than an uncertain one. They especially expect this when they received defective products and can prove their losses.

But that’s not how Sinosure operates. It is an arm of the Chinese government, and the people at Sinosure who decide what happens to your money are bureaucrats rewarded for following government policy. My answer is blunt: You are assuming the person on the other end has both the authority to evaluate your evidence and an incentive to act on it. Neither assumption is correct. For practical purposes, you are not negotiating with an insurance company. You are negotiating with the Chinese government.

I have never seen evidence that the people handling these claims have meaningful authority to reduce or abandon them simply because the facts point the other way. Even if someone had that authority, exercising it could create personal risk. Colleagues, superiors, or government officials could accuse that person of failing to protect state interests or fight hard enough for the Party, the country, and the Chinese exporter.

So what happens when we present clear evidence that far less, or nothing at all, is owed? Nothing. The demand stays the same. Sinosure neither meaningfully addresses the evidence nor explains why it rejects it. The collection effort continues as though the evidence had never been submitted.

You can keep wishing Sinosure would behave like a commercial creditor. Companies facing Sinosure claims must act based on how the system actually works, not how it ought to work.

“We Still Have to Try”

We tell clients all of this, and their response is usually some version of, “We understand, but we still have to try.” This impulse is understandable. Businesspeople negotiate every day, and they do not want to spend substantial money on lawyers before testing whether a few calls or emails might solve the problem. They believe their longstanding relationship with the factory will matter. They think some “powerful and connected contact” in China can help. They assume Sinosure will reduce the claim once it hears about the defective goods, late shipment, broken promises, or lost customers.

They then spend weeks or months exchanging emails with the factory, Sinosure, and its collection agent. They provide explanations, documents, and payment proposals, often making admissions they do not recognize as such. Through it all, Sinosure continues demanding essentially the same amount. In the worst case, the buyer pays the factory, believing that will stop the wolf at the door, only to discover that it paid the wrong wolf. Sinosure continues pursuing the same claim.

That is why my parting advice to clients who insist on negotiating is always the same: If you reach a settlement, make sure it is with the party that actually owns the claim. I also strongly suggest coming back to our law firm for an effective settlement agreement.

Settlement discussions do not protect assets. While the buyer tries to persuade Sinosure to accept less, the factory still holds its molds and pending shipments. Trademarks remain registered in China, receivables remain outstanding, and deposits remain with suppliers. Executives continue planning trips to China. Other Chinese suppliers stop extending credit because Sinosure has cut off the company’s access to insured supplier credit.

As we explained in Sinosure Claims: Why Foreign Buyers Need More Than a Quick Consultation, the first priority is protecting the company’s people, evidence, and, most importantly, whatever it has in China that can be taken. Most protective measures work best before Sinosure or the factory realizes the buyer is preparing for a serious dispute.

I would like to explain exactly what we do to protect clients once a Sinosure claim surfaces, but I am not going to lay out our entire playbook here. I assume Sinosure will eventually see this blog post, and its lawyers in the United States almost certainly will. Publishing every step we take would help them tighten their defenses, close off some of the avenues we use, and make it harder to protect the next client’s people, assets, evidence, and leverage. Some legal advice is more valuable when it stays out of a public blog post.

Once the other side realizes the buyer is preparing for a serious fight, the factory’s behavior can change fast. Molds become unavailable, shipments stop moving, and the credits and replacement goods someone promised in March turn out never to have been agreed upon. Other suppliers begin demanding larger deposits or full payment before production. A poorly timed settlement effort can also reveal the company’s strategy, financial condition, and dependence on China before it has protected itself. We have seen Sinosure seize payments sent into China by American companies and target their China trademarks.

While You Wait, the Collection Pressure Continues

Those months are rarely quiet. While the company tries to persuade Sinosure to compromise, it may also be dealing with aggressive and sometimes appalling collection conduct in the United States. Some of the collection agencies Sinosure uses conduct themselves responsibly. Brown & Joseph, for example, has been consistently professional across the many matters in which we have dealt with it. Some others have not.

One of Sinosure’s U.S. collection agencies seems willing to do pretty much anything to earn its percentage of whatever it collects. We have seen its collectors repeatedly call executives, contact their spouses and sometimes even their children, and bring corporate disputes directly to their homes. One collector likes to appear at the company’s offices and loudly announce to the receptionist (even with customers or clients in that space) that the company does not pay its bills. The collector then suggests that the receptionist may also be at risk of not getting paid. I still have a CEO’s text on my phone from one such matter. He reported that a collection representative blocked his wife and son from driving out of their garage and yelled at them. His wife was so shaken that she called in sick. Neither she nor her son had anything to do with the alleged debt.

Companies that decide they “have to try” negotiating for several months should understand what those months may look like. Sinosure’s demand will not change. The company’s China exposure will worsen. The collection pressure at home will likely become more intrusive.

Depending on the jurisdiction and the conduct involved, state collection laws, unfair-practices statutes, tort law, and criminal harassment or stalking laws may still apply. This is especially true when collectors target spouses, children, or others who do not work for the company.

The “We Don’t Have Any Assets in China” Fallacy

When I warn companies that Sinosure can go after their assets in China, the response is often immediate: “We don’t have any assets in China.” Nearly every time, that turns out to be wrong. The company may not own a Chinese factory or have millions of dollars sitting in a Shanghai bank account, but that is not the same as having nothing in China worth protecting. Five minutes of questions usually uncovers trademarks, patents, copyrights, inventory, molds, tooling, deposits, contracts, employees, or other valuable assets that Sinosure can seize or use as leverage.

China exposure often starts with intellectual property: trademarks, patents, copyrights, and domain names registered in China. It extends to whatever is sitting on a supplier’s floor, including molds, tooling, samples, production equipment, finished goods, components, and anything awaiting shipment, customs clearance, or warehouse release.

It also includes money already in China in the form of deposits, prepayments, supplier credits, bank accounts, receivables, and equity in a subsidiary or joint venture. Then there are the arrangements that allow the business to operate: manufacturing and distribution contracts, leases and lease deposits, e-commerce accounts and platform balances, WeChat official accounts, employees and contractors, technical files stored in China, and the licenses and registrations without which the company cannot operate there.

Sinosure can use Chinese court proceedings to freeze, preserve, or seize assets in China, and in our experience it often does. Depending on who owns the claim and how the case is structured, the application might be made by Sinosure, the factory, or another party claiming rights to the alleged debt. Bank accounts and receivables can be frozen. Inventory, equipment, and equity interests can become litigation targets. Molds disappear or are held hostage, shipments stop moving, and supplier relationships built over a decade can end in a week. Intellectual property rights can also become targets, threatening the company’s ability to manufacture or export its own products.

Any money sent into China is also be at serious risk of seizure. We have been told by reliable sources that Sinosure encourages a debtor’s other Chinese suppliers to attract payments that Sinosure can then seize. When the Chinese government asks for a favor, even a company’s best and longest-standing Chinese factories have little choice but to comply. Or to quote a funny client of mine, “when Uncle Xi is at your door, the shit gets real very fast.”

Sinosure will look for anything the company has in China that can be used to collect the claim. At least a dozen companies that insisted they had no assets in China have called me back within a month asking whether we could recover funds or another asset that had been seized. By then, the answer is often no. The time to protect those assets was before the seizure.

What If You Really Have Nothing in China?

A few buyers genuinely have no meaningful assets or operations in China. That reduces Sinosure’s leverage, but it does not necessarily end the problem.

Depending on the contract and who owns the claim, the supplier or Sinosure can pursue litigation or arbitration. If the contract calls for CIETAC or another Chinese arbitral institution, the resulting award can be enforced in the United States under the New York Convention. The available defenses are limited, and a buyer should never assume a Chinese arbitration will remain a China-only problem.

Chinese court judgments follow a different route. A judgment creditor ordinarily must first obtain recognition from a U.S. court under the law of the state where enforcement is sought. Recognition is not automatic, and defenses can include lack of jurisdiction, inadequate notice, procedural unfairness, certain forms of fraud, and violation of a valid arbitration or forum-selection agreement.

The route nonetheless exists, and creditors use it. U.S. courts have recognized and enforced Chinese money judgments against American defendants. Assuming a Chinese judgment cannot reach U.S. assets is a serious mistake. We explain this process in Enforcing or Challenging a Foreign Judgment in the United States.

There is also the risk of the company being sued in the United States or its home country. Sinosure once rarely pursued this route. It does so now, though in our experience such cases remain uncommon, and so far have been confined to just one of Sinosure’s U.S. debt collection teams.

The more immediate consequence is often commercial. Chinese suppliers that previously sold on credit begin demanding full payment before production because Sinosure will no longer insure the credit that made those terms possible.

Sending money into China creates another danger because Sinosure may seize it. We therefore generally counsel against doing so while the dispute remains unresolved. For a company that sources most of its products from China, losing supplier credit across its supply chain can cost far more than the disputed invoice.

Do Not Send Anyone to China

Exit-ban risk applies whether or not the company owns attachable assets in China. Before an owner, executive, employee, or negotiator travels there, the company should assess whether the dispute could expose that person to an exit ban. Chinese authorities can impose exit restrictions in civil and commercial disputes without advance notice, and those restrictions can last for years. People often discover an exit ban only when they try to leave China.

The fact that the traveler does not personally owe the alleged debt does not eliminate the risk. We tell everyone who contacts us with a Sinosure problem not to go to China. Full stop. For more on this risk, see China Exit Bans: You Can Check Out Any Time You Want, But You Can’t Ever Leave.

Every Email and WeChat Message Can Become Evidence

The months a company spends trying to settle do more than delay its protection. The settlement talks generate evidence that can help the other side. Foreign companies often believe that explaining the situation will help. They also wrongly assume their settlement communications will be protected from use as evidence.

The foreign company’s emails will often say things like:

• “We know the invoice is overdue, but our customer has not paid us.”
• “We will pay as soon as our cash flow improves.”
• “We agree that we owe something, but not the full amount.”
• “We can pay $200,000 now if you forgive the rest.”
• “Much of the product was defective.”
• “Delivery was so late that we had to pay our customers a penalty.”

To a businessperson, these statements sound practical and conciliatory. To Sinosure and a Chinese court, they can be admissions, and they may later appear as exhibits. Some may also be treated as admissions in U.S., Canadian, or UK courts.

The buyer may have legitimate claims involving defective products, late delivery, unauthorized production, fake certifications, agreed credits, or rejected goods. Those claims become harder to assert after the buyer has admitted the debt, promised payment, requested more time, or blamed its failure to pay on cash flow.

What to Do Before Negotiating

A company facing a Sinosure claim should address at least seven things before opening or continuing settlement discussions:

1. Preserve the documents and communications. Pay particular attention to WeChat histories stored on employees’ personal phones. Preserve every collection letter, voicemail, text message, and record of family contact or a home visit. Do this before anyone quits, deletes an account, replaces a phone, or loses access.
2. Designate one person to communicate. One person should speak to the factory, Sinosure, and its collectors. Everyone else should stop, including anyone who thinks a friendly call to a contact at the factory will help.
3. Determine who owns the claim and what the documents support. Identify what was ordered, what was delivered, and what the contemporaneous records actually show. This is not only about defenses. When the goods were defective or nonconforming, the buyer may have affirmative claims worth pursuing. Where and when to assert those claims should be decided at the beginning, while the buyer still has options, not after months of damaging emails.
4. Identify everything the company owns or depends on in China. Protect whatever can still be protected before the dispute escalates.
5. Do not travel to China.
6. Prepare for litigation, asset-preservation applications, and settlement. Determine which assets could be frozen, who controls the claim, and which parties must sign any release.
7. Develop a Plan B. Determine how the company will continue buying from China or leave China entirely. I often tell companies they may not need our law firm if they truly have no assets in China, never intend to do business there again, and will not travel to China or Hong Kong. Otherwise, they do.

Only after addressing these issues should the company decide whether and how to negotiate.

What a Real Sinosure Settlement Must Accomplish

None of this means a company should never settle a Sinosure claim. If the debt is valid, the documents are bad, and the dispute threatens the company’s supply chain, financing, future sale, or China operations, settlement may be the best commercial outcome.

Of the more than 100 Sinosure matters I have handled, I believe only three resulted in settlements. Our clients had specific and compelling reasons for resolving those matters. We have tried to negotiate settlements in dozens of other cases, but Sinosure has never once budged on principal.

The objectives must be realistic. The company might obtain more time to pay, installments in rare cases, removal of unsupported interest and fees, or continued access to important suppliers. It should not spend months expecting Sinosure to reduce principal merely because an ordinary commercial creditor might do so. The company also needs to determine who controls the claim. A factory may insist it can settle everything. It might offer a discount, provide new wiring instructions, and promise that payment will make Sinosure disappear. That promise may be worthless.

If Sinosure has already reimbursed the factory and acquired the claim through subrogation, assignment, or another transfer, the factory may no longer control the claim or have authority to release it. Many companies have come to our law firm after paying their factory, only to discover that Sinosure is still pursuing them for the same money. The reverse problem also occurs. A buyer may pay Sinosure without obtaining a binding release from the factory, which later demands interest, fees, payment of additional invoices, or payment through a related company.

Any settlement should bind every party capable of asserting the claim. That might include Sinosure, the Chinese supplier, a trading company, an affiliated exporter, or another related entity. The agreement should identify the correct Chinese legal entities and address every relevant invoice, shipment, purchase order, and claim. I am proud to say that, of the dozens of settlement agreements we have drafted with Chinese companies, including the few involving Sinosure, our clients have never been sued or required to pay twice.

We generally draft these agreements to be effective and enforceable in both relevant countries. If the agreement is between an American company and a Chinese factory, for example, it will usually be bilingual in English and Chinese, with Chinese as the official language and a Chinese court or arbitral body as the dispute-resolution forum. It will also be drafted to work in the United States. An email promising that “the account will be closed” is not a settlement agreement. We discuss these risks in Sinosure Debt Collection: What It Is, How It Works, and How to Protect Your Company.

Protect First, Negotiate Later

When we get the second call from a company that tried to negotiate with Sinosure, the story is almost always the same. Sinosure has not reduced its demand by a single dollar. The company’s relationships with its Chinese factories have largely collapsed. Someone at the company has written something that damaged the defense. And everyone is sick to death of being harassed by the collection agency.

By then, molds, shipments, trademarks, bank accounts, contracts, and supplier relationships may be at risk or already gone. Steps that should have been taken quietly at the outset have become more difficult, more expensive, or impossible.

Wanting to negotiate is natural, and we do not tell clients to skip it. We do, however, tell them to expect the negotiations to fail and not to let those negotiations dictate the timetable. The company should begin putting protections in place at the same time.

When Sinosure makes its demand, protect first and negotiate later. By the time Sinosure finally convinces you that it will not compromise, your leverage may already be gone. Our firm has handled more than 100 Sinosure matters, and the sooner we become involved, the more options we will have to protect your company, your people, and your assets.