China Sinosure as Existential Threat

China Sinosure can be an existential threat for businesses in its crosshairs. In this post, we explain what Sinosure is, what causes Sinosure to put a foreign company in its crosshairs, why Sinosure is so dangerous, and, how to fight back and win against it.

1. What Exactly is Sinosure?

Nearly all Chinese companies that provide credit to foreign businesses do so only because their invoices are insured by Sinosure. Sinosure is a massive China-based export and credit insurance company, as explained by Wikipedia:

Sinosure offers coverage against political risks, commercial and credit risks. This includes short-, medium- and long-term export credit insurance, investment insurance, bond and guarantee business, debt and capital retrieval business and credit assessment business. Investment guarantees cover political risks such as currency and remittance restrictions, expropriation and nationalization, sovereign breaches of contract and war.

Sinosure also provides support for export financing. In March 2011, in reached an agreement with J.P. Morgan to provide a wide array of financial services to exporters, with SINOSURE covering J.P. Morgan’s exposure.

Sinosure also covers SMEs (since 2005, even those with export volumes of under 2 million dollars a year that are unable to bear the political and commercial risks of international trade. The company also provides coverage for foreign investment by Chinese companies, this time most often by large SOEs.

Foreign companies usually deal with China Sinosure only if they have a payment dispute with their Chinese product supplier. When that happens, Sinosure usually steps in and threatens to sue the foreign company with the problems. Sinosure does this by hiring debt collection lawyers in the alleged debtor’s country to pursue the debts of the Chinese manufacturers it insures. Sinosure is very aggressive in pursuing collection outside China so you need to take its threats seriously. Usually these threats come from the Leviton Law Firm or from Brown & Joseph Collection Agency.

2. China Factory Problems Lead to China Sinosure Problems.

Chinese factories experiencing problems are more likely to ship bad products, no products, and/or late products to foreign product buyers that then refuse to pay in full. Then in steps Sinosure to collect the payment “shortfall” from the foreign product buyer. Because so many Chinese factories are having problems these days, our lawyers are getting a lot more inquiries from companies being hounded by Sinosure for payment.

The below is the typical sort of scenario our international litigators see where Sinosure becomes involved:

1. Foreign company (for purposes of this example, a U.S. company) buys $2 million of widgets from Chinese manufacturer.

2. U.S company pays Chinese company $1.4 million upfront for widgets, with the remaining $600,000 to be paid upon delivery.

3. The widgets that arrive in the United States are of terrible quality, to the point of being nearly worthless.

4. The U.S. company refuses to pay the remaining $600,000 and asks for new and better product.

5. The Chinese manufacturer goes radio silent and two months later, Sinosure knocks on the door of the American company, via a threatening letter or phone call from one of Sinosure’s U.S. law firms or collection agencies. OR, the Chinese manufacturer and the U.S. company seek to work out a deal and while that is happening, the U.S. company gets a threatening letter or phone call from from one of Sinosure’s U.S. law firms or collection agencies.

6. The Chinese manufacturer will insist to its U.S. buyer that it never contacted Sinosure and that the U.S. company should just ignore Sinosure.

7. The Chinese manufacturer will deny that Sinosure has any authority to act on its behalf and it will tell the U.S. company to just pay them directly (the Chinese manufacturer) and if it does so all will be fine. In the meantime, Sinosure is claiming that if the US company just pays Sinosure, all will be fine.

8. Oftentimes, even sub-suppliers of the Chinese manufacturer will start contacting the U.S. company to get paid.

3. What Makes China Sinosure so Dangerous?

Here are some basics of what you need to know should anything like the above happen to you:

1. Do not expect the law firm/collection agency representing Sinosure to know why you have not paid your China manufacturer. These law firms/collection agencies typically get a percentage of what they collect and they rarely care about anything but this.

2. Do not expect the law firm/collection agency representing Sinosure to care about why you have not paid your China manufacturer. These law firms/collection agencies typically get a percentage of what they collect and they rarely care about anything but this.

3. Do not expect the law firm/collection agency representing Sinosure to know the correct amount you actually owe your China manufacturer. Do not even expect them to know whether you actually owe your China manufacturer anything at all. There is a good chance your Chinese manufacturer has lied to Sinosure about the situation and the amount you owe. But do not expect Sinosure’s law firm/collection agency to care about this. These law firms/collection agencies typically get a percentage of what they collect and they rarely care about anything but this.

4. In our extensive experience handling Sinosure cases — we’ve handled nearly 50 of these  — the only goals of Sinosure’s law firm/collection agency seems to be to do Sinosure’s bidding. Their only focus seems to be to get Sinosure paid as much as possible as quickly as possible. Their goal will be to get results for Sinosure, not to help you in any way.

5. Do not pay anyone anything without first having a proper written agreement that will prevent anyone from seeking more from you. This agreement should be in Chinese and under Chinese law. It also must make clear that your payment resolves all existing and potential claims by Sinosure and all relevant Chinese manufacturers. This agreement needs to work in both China and the United States and it needs to be signed by all relevant parties, including your Chinese manufacturers. If your agreement does not comply with all of the above, you likely will face additional lawsuits.

6. There are all sorts of terrible things China Sinsosure can and will do to your business, most of which will happen in China. The first thing it usually does before even reaching out to you is to stop insuring your product purchase payments. This is usually just the start.

4. What You Should NOT Do if Caught in a Sinosure Vortex.

Companies too often contact our law firm after having done something that weakens or destroys their defenses against Sinosure. You can avoid this problem by doing the following:

1. Do not tell Sinosure’s law firm/collection agency anything beyond that “we will contact an attorney and have that attorney reach out to you.”

2. Do not discuss anything related to your Sinosure situation with anyone in China, and especially not with the Chinese manufacturer on whose behalf China Sinosure is acting.

3. Do not pay anything to Sinosure or to its law firms or collection agencies or to the Chinese manufacturer on whose behalf Sinosure is acting. They will probably try to convince you that you paying some of what you owe will help you, but in our experience it only heightens their lust for blood.

4. Do not settle with your manufacturer or with Sinosure or its law firms/collection agencies without having a really good Chinese language settlement agreement in place.

6. What You Should Do if Caught in a Sinosure Vortex.

What should you do if you are contacted by a law firm/collection agency acting on Sinosure’s behalf?

1. The first thing you should do is take it very seriously. If you do not pay Sinosure, it will add your name to a list of foreign companies whose product purchases it will no longer insure. If your China product purchases are no longer insurable in China, virtually no China supplier (including those with which you have had a long term relationship!) will extend you credit on your purchases. Th next time you order $2 million in widgets, you will need to pay the full $2 million upfront.

2. If you are not paying your Chinese supplier because of cash flow problems, neither Sinosure nor its attorneys/collection agencies will listen or care. They want money now and you can borrow to pay it.

3. If you are not paying your Chinese supplier because your supplier gave you bad product, Sinosure and its law firms/collection agencies will “listen” only if you do certain key things to “make” Sinosure listen. Sinosure’s lawyers/collection agencies will probably tell you that your reason for not paying does not matter, but that is just because they want you to pay quickly. It will be incumbent upon you (or your lawyer) to convince Sinosure that it will be better off listening to you than suing you in the United States (or your home country) and/or making your business (and even your personal life) a living hell in China.

4. You must do certain things right away in China and in your home country to prevent Sinosure from harming your company. Our law firm’s international litigators have developed strategies that protect our clients against Sinosure. These strategies will depend on your specific situation and risk tolerances. We do not reveal our strategies here because we do not want Sinosure to know what they are.

You have plenty of options for dealing with Sinosure beyond just letting it roll all over you. Indeed, if you employ the right tactics,  Sinosure is relatively easily to vanquish.