The 752.7 kilometre Addis Ababa-Djibouti Railway stretches from the Ethiopian capital Addis Ababa to the port of Djibouti, cutting the original seven-day journey to 10 hours. It cuts transport costs by half compared to road transport.
Built by the China Civil Engineering Construction Corporation (CCECC), the transnational electrified railway has been hailed by locals as a remarkable project of the Belt and Road Initiative, as it has promoted regional connectivity and economic development since its official opening for commercial operation on 1 January 2018.
However, few may know that the smooth construction and operation of the railway was made possible by China’s policy-oriented insurance, which covered the financial risks of the project.
The total cost of the project was about $4 billion, with a Chinese bank providing financing and China’s only policy-oriented insurer, China Export and Credit Insurance Corporation, or Sinosure, providing credit insurance.
Chen Sichang, general manager of CCECC, said Chinese companies venturing overseas may face unpredictable political risks such as wars, riots or currency restrictions.
They may also face commercial risks such as poor business practices, insolvency and deliberate non-payment, which can result in losses that companies find difficult to bear.
“Sinosure’s export credit insurance provides a safety net for companies involved in trade by covering both political and commercial risks. This ensures that businesses can continue to operate and grow steadily over time,” he said.
Chen said Sinosure’s insurance could also help facilitate the flow of funds to support overseas market expansion.
“Policy-based export credit insurance enhances the credit (worthiness) of enterprises and effectively improves the accessibility and security of financing for enterprises,” he said.
It also facilitates financing by transferring risks, helps enterprises and banks to establish financing structures, and makes banks more willing to provide loans with potentially more favourable interest rates, he added.
Under the Belt and Road Initiative, CCECC and Sinosure have been cooperating in business since 2013, with a total of six medium- and long-term projects and a total insurance amount of US$2.898 billion. There have also been 19 special insurance projects with a total insured amount of $5.054 billion.
China’s policy-oriented insurance has become an important tool for enterprises participating in the Belt and Road Initiative to assess potential risks, seek financing and avoid economic losses.
Over the past decade, Sinosure has signed cooperation agreements with government departments, financial institutions and peer institutions in more than 40 countries. It has assisted countries involved in the BRI with more than $1.9 trillion in exports and investments.
Sinosure has also built a financial bridge for the joint construction of the BRI. It has established business cooperation with more than 240 banks, signed framework and special cooperation agreements with 39 Chinese banks, and guided various cooperative banks to provide financial support to export enterprises and BRI projects.
China Harbour Engineering (CHEC) has invested in and operated the Lekki Deep Sea Port in Lagos, Nigeria. In 2021 and 2022, Sinosure issued overseas investment insurance policies for its equity and debt, with a total insured amount of nearly $900 million.
Bai Yinzhan, president of CHEC, said that since the BRI was proposed 10 years ago, remarkable achievements have been made. However, with the profound and complex changes in the world situation, the company attaches great importance to relevant risks to ensure the steady and long-term high-quality development in the construction of the BRI.
Since 2009, a total of 23 of the company’s cooperation projects in 13 countries have been insured by Sinosure, with a total insured amount of nearly US$5.8 billion.
According to Bai, the main risks for the company are macroeconomic, investment and financing risks, such as the lack of momentum in global economic growth, increasing pressure on public debt and financing exchange rate risks caused by foreign exchange reserves.
Other risks include geopolitical and security risks. Instability and leadership changes are also prominent risks.
An effective tool
Bai said policy-based insurance is an important tool for companies to identify and manage risks, as Sinosure provides customised risk assessment information services for specific countries, industries and buyers.
Both companies have established an electronic data exchange system to better share information with each other, enabling dynamic tracking, analysis, early warning and evaluation of risks.
Sinosure’s products help companies diversify their operational risks. The company’s special insurance provides payment guarantees, medium to long-term insurance covers loan agreements and overseas investment insurance covers political risks.
“These are the most effective risk management tools in the project implementation and management process,” he said.
By leveraging Sinosure’s resources in banks and the industrial chain, the company can better develop cooperation with the destination country and the third party, Bai added.
The China Road and Bridge Corporation (CRBC) has been working with Sinosure since 2012. Over the years, they have collaborated on long-term insurance, overseas investment insurance and special export insurance for 30 projects in 13 countries, with a total insurance value of more than $20 billion.
Du Fei, president of CRBC, said that transport infrastructure construction projects usually require large amounts of investment, take a long time to pay off, and financing is difficult to obtain.
The BRI covers a vast area, and the countries involved have great differences in politics, economics, religion, culture, science and technology.
“China’s policy-oriented insurance has played an important role, providing all-round support in risk protection, financing promotion, market development, loss compensation and information services,” he said.
He Yun, an associate professor at the School of Public Administration at Hunan University in Changsha, said that in some developing countries, security risks, including regional turmoil, extremism, war and terrorism, and political risks, such as leadership changes, democratic movements and ethnic divisions, pose major challenges to businesses. In addition, economic risks from currency devaluation, inflation and high debt levels, as well as legal risks, further complicate the landscape.
The increasing use of China-oriented insurance by Chinese companies for their overseas investments shows that they have become sophisticated international companies and have developed experience and expertise in managing cross-border investments and entering new markets abroad.
