recent development of china’s surety market · 2019-10-10 · recent development of china’s...

ZHANG Weiming PhD

CFO of China National Investment and Guaranty Corporation (I&G)

ICISA 77th Annual Meeting, Washington DC, 7 Jun 2019

FILE 2019058

Recent Development of China’s Surety Market

2

Agenda

II Recent Development of China’s Surety Market

III Overlook of Legal System and Policies

IV Exploration and Achievements of I&G

V Trends and Expectations

I Brief Introduction about China I&G

PART I About China I&G

3

Brief Introduction about China I&G: Highlights

Who we arePioneer of guarantee industry in China, Guarantee company with the longest history in China, established in 1993

Initiator and chairman of China Financing Guarantee Association

Promoter of legislation of guarantee and surety industry in China

Innovator of guarantee and surety products. One of the largest nation-wide guarantee company in China with

accumulated guarantee volume exceeds $73.6 billion USD and clients over 25,000

International Communication Channel: member of PASA, SFAA, ICISA, continuously contributing to healthy

development of local surety market, promoting international communication and cooperation.

What we do Credit enhancement: for municipal bond, principal-guaranteed funds, ABS (asset backed securities) , green finance

(with Asia Development Bank).

Surety provider: construction surety including bid bond, performance bond, etc.

What we have Long-term entity credit rating AAA, outlook stable (by top Chinese credit rating institutions)

Strategic cooperator with China's top banks, securities companies, trust investment companies, financial assets

management companies and professional investment and consulting organizations.

4

PART IIRecent Development of

China’s Surety Market

5

6


China’s market demand for construction surety shows a trend of growth due to :

Growth of economy of the country

Strengthening of policy guidance at both national and provincial level

1. Market Demand

Traditional cash deposit is now gradually replaced by construction bond.

*The scale of demand is a rough and conservative estimation based on scale and growth of China’s national

fixed asset investment, overall accepted contract amount recorded by tendering companies and government

procurement centers.

Predicted nationwide demand for construction bonds in 2019 is about $800 billion USD

7


2.1 Type of Local Product

There are a few other products such as owner payment guarantee, supplier guarantee,

subcontractor guarantee, construction workers’ wage guarantee, etc.

Bid BondGuarantee that the bidder will participate in the bidding activities as prescribed by the related

bidding documents.

Performance Bond Guarantee that the contractor will perform obligations as agreed in the construction contracts.

Advanced Payment

Bond

Guarantee that contractor/supplier will use prepayments for the contracted purpose in a

correct, logical way as prescribed by the related contracts.

Quality

(Maintenance)

Bond

Guarantee that contractor will make timely correction and maintenance in case of any quality

deficiency during the construction period and warranty period defined in the construction

contracts.

8


a. Low percentage of the contract amount

2.2 Feature of Local Products

b. Mostly unconditional / first demand bond.

c. The nature is to compensate the economic loss of beneficiary, instead of completing the project.

Bid bond no more than 2% of the total contract price.

Performance bond about 30% of the total contract price.

Maintenance bond between 5-10% of the total contract price.

Advanced payment bond usually 100% of the prepayment.

9


3.1 Banks dominant

3. Major Local Market Participants

Earliest participants in the market with first-mover advantages.

Widely accepted by both project owners and contractors.

Seize over 90% shares of the market and will still be monopolist in the foreseeable future.

Bond service is supplementary service to clients with low rates.

35 Banks presented a bond issue amount up to $626 billion USD in 2017 (including

fronting business with surety companies)

10



In 2013 China Insurance Regulatory Commission lifted the ban on insurance companies’

involvement in surety market. Then local insurance companies marched into surety market. But

3.2 Insurance Companies: accelerate the entry into the market

Only a few companies show strong growth, mostly are not very active.

Mainly consumer financing product, few construction bond.

11


3.3 Guaranty Companies: gradually infiltrate


China I&G is the first-mover and now about 300 guarantee companies underwrite surety

bonds.

National level: nationwide business, total issue amount around $14.5billion USD per year.

Regional level: provincial and city state-owned guarantee enterprises, which have surety

business but mainly focus on financial guaranty. They do have regional market influence.

Owners still prefer bank issued bonds so many guaranty companies act as counter-

guarantors for banks, in that case, fronting bank issue bond to contractors.

China I&G is the national pilot surety institution approved by The Ministry of Finance in

credit guarantee project, so we issue bond independently in most cases.

PARTIIIOverlook of Legal

System and Policies

12

13

Overlook of Legal System and Policies

1. Legal and Policies

National level: Still no mandatory requirement for any kind of construction bonds, but

encourage to use construction bonds instead of security deposits.

Regional level: Local policies dictate that bond has equal effects as traditional security

deposit in many provinces/cities, such as Beijing, Shenzhen, Guangdong, Xiamen, etc.

14

Overlook of Legal System and Policies

2. Policy Orientation

Strong policy guidance

2013 CIRC lifted the ban on insurance companies’ involvement in surety market.

2016 Central government carried out an overall clean-up and standardization on construction

deposits, and ALLOW bonds to replace deposits.

More strict supervision

2017 CIRC (now CBIRC) placed regulation on insurance companies which have bond business.

While encouraging insurance companies to carry out bond business, the commission

will pay sustained attention to their corporate governance and regulation compliance.

Related rectification will be down to avoid financial risks and market disorder.

PARTIVExploration and

Achievements of I&G

15

Exploration and Achievements of China I&G

1. Research & Exploration

China I&G has carried out research & exploration on construction bond since founded.

We created the basic standards and systems for guarantee industry from the ground up,

promoted relevant legislation and regulation systems for the business,

published books to provide technical supports for industry development.

16

17


2. Practices

China I&G issued first construction bond in 2001 and has accumulated rich experience in the

last two decades. We are the only national pilot surety institution approved by China's Ministry

of Finance in credit guarantee project, we maintain stable business relationships with first-class

tendering and engineering consulting corporations. Bond issued to public institutions and state-

owned enterprises at all level.

Also, we keep close contact and try international corporation with SGIC, Travelers etc.

18


3. E-bond

China I&G E-bond platform was tested and then officially applied online in 2017.

It realized an automatic operation of bid bond business from application to bond issue.

Clients get e-bond in seconds after approved by dynamic risk management and control system.

The platform has connected with many public resource trading centers

and has issued 5,200 bid bonds so far.

PART V Trends and Expectations

19

20

Trends and Expectations

We expect a huge and sustainable bond market in China in the future. Guarantee

insurance will be a strong force participates in the market.

Both insurance and guaranty companies should be aware of the balance between

business development and risk management. Insurance company should

distinguish financial guarantee insurance VS surety bond

financial business VS non-financial business

21

Trends and Expectations

Fin-tech will be widely applied and E-bond may probably become a prevailing

trend for business development.

Rapid development of national informatization construction : higher efficiency, lower

cost.

Strong support of internet big data : multiple dimensions and all-around credit

information collection will finally lead to efficient client credit profiling and risk

control.

22

Disclaimer

The information provided in this presentation does in no way whatsoever constitute

legal, accounting, tax or other professional advice.

While China I&G has endeavoured to include in this presentation information it

believes to be reliable, complete and up-to-date, the company does not make any

representation or warranty, express or implied, as to the accuracy, completeness or

updated status of such information.

Therefore, in no case whatsoever will China I&G and its affiliated companies or

directors, officers or employees be liable to anyone for any decision made or action

taken in conjunction with the information in this presentation or for any related

damages.

recent development of china’s surety market · 2019-10-10 · recent development of china’s...

Documents