Doing Business in China with Export Development Canada
On this page
- EDC's track record
- Support for sales and investment in China
- Export insurance services
- Sales on short-term credit
- Sales on medium-term credit
- Political risk insurance
- Export financing services
- export financing services
- How to access EDC's credit facilities
- Opening doors for SMEs
- Support for new risk transactions in china
EDC's track record
Export Development Canada (EDC) is a unique financial institution that has been helping Canadian businesses grow and prosper through exports and international investment since 1944. EDC's sophisticated trade finance solutions can help exporters compete in more than 200 countries, including higher-risk and emerging markets. EDC is a Crown corporation that operates as a commercial financial institution.
The Corporation is governed by a board of directors composed of representatives from both the private and public sectors, and reports to the Canadian Parliament through the minister for international trade.
EDC delivers its products and services through sector-based business teams plus a cross-sector team dedicated to serving smaller exporters. These business teams are supported by a network of experts who provide in-depth market and product knowledge, research, analysis and skills.
Support for sales and investment in china
EDC has considerable experience in supporting Canadian exporters and investors in the China market. The Corporation's involvement in China extends back to 1979, when it established a relationship with the Bank of China. Since then, more than 300 Canadian contracts have been supported, involving over $8 billion of Canadian goods and services. Today, as the dynamic China market continues to flourish, an array of EDC insurance, financing, guarantee and bonding programs is available to support Canadian firms in penetrating or expanding their businesses in China.
Export insurance services
EDC's insurance services include:
- insurance for sales on short- and medium-term credit;
- bid/performance-related insurance and guarantees;
- surety bond support;
- equipment (political risk) insurance; and
- foreign Investment Insurance.
EDC insurance policies protect exporters against various losses due to commercial and political risks. Examples include buyer insolvency, default on payments, repudiation of goods, contract termination, foreign exchange conversion or transfer payment difficulties, war, revolution or insurrection preventing payment, cancellation of government import or export permits, wrongful calls on bid/performance letters of guarantee, and inability to repatriate capital or equipment due to political problems.
Sales on short-term credit
EDC's export credit insurance is available to help Canadian exporters manage the commercial and political risks involved in extending short-term credit (generally up to 180 days) to their buyers. Today, EDC is supporting a wide variety of goods and services sold on short-term credit to the China market, including base minerals, forestry products, building materials and information technology.
The commercial and political risk coverage offered by EDC's export credit insurance can help protect an exporter's cash flow, assist in structuring more attractive payment terms for buyers, and increase an exporter's access to working capital.
EDC's overall experience in China has been favourable, and coverage is available to support sovereign, quasi-sovereign and private buyers. The biggest challenge for EDC in supporting short-term credit sales to China is the lack of availability of good credit and financial information on buyers. EDC is continuing to develop relationships with key credit reporting agencies in the China market to assist exporters in this area.
Sales on medium-term credit
Insurance support for contracts involving the provision of medium-term credit to Chinese buyers is also available from EDC. This support is particularly applicable for the sale of capital equipment and services, including projects such as the establishment of turnkey plants.
Historically, medium-term credit transactions that EDC has supported have involved projects supported by Chinese government-owned banks.
In addition to credit insurance covering certain commercial and political risks of non-payment, EDC's Performance Security Insurance and Guarantees have been important tools for exporters.
These programs protect against certain calls on performance instruments which are established in favour of Chinese buyers. The protection can be instrumental in allowing exporters to free up their working capital lines with their banks. Under the Performance Security Guarantee program, a full guarantee is offered to the exporter's bank against any call on the bid/performance bond.
Political risk insurance
As the Chinese market continues to expand, Canadian firms need to participate through investment in order to compete effectively. More and more Canadian firms are establishing an ongoing presence, often through a joint venture company in China. To date, many of these joint ventures have involved Chinese entities owned by state, provincial or municipal governments.
EDC's Political Risk Insurance (PRI): EDC's PRI indemnifies investors for up to 90 per cent of losses caused by three types of political risk: transfer and inconvertibility of funds, expropriation and political violence. With this protection in hand, investors are able to focus on what has made them successful in the first place -- the commercial and technical aspects of their businesses.
Expropriation is a risk of particular significance to Canadian firms operating in China. In this regard, the risk is not so much that of overt nationalisation, but whether the laws and regulations governing foreign investment will be consistently implemented and enforced by the various levels of government in China. EDC's FII mitigates this uncertainty in that investors are indemnified if such creeping expropriation threatens the viability of their investments.
Export financing services
EDC's financing services include:
- lines of credit with foreign banks or agencies worldwide;
- note purchase arrangements;
- direct buyer loans; and
- project risk financing packages.
EDC's financing services enable Canadian exporters to provide their customers with flexible medium- or long-term financing. Support is provided for the sale of capital equipment and services, with repayment terms generally extending up to 10 years, depending on the nature of the product or service. Under EDC financing arrangements, EDC disburses funds directly to the Canadian exporter. All transactions financed must meet EDC's normal criteria relating to Canadian benefits, the exporter's technical and financial capability and the credit worthiness of the borrower/country.
The provision of competitive and flexible medium- to long-term financing to Chinese buyers by Canadian exporters is often crucial in winning capital equipment and services contracts. EDC financing, which is in conformity with the Guidelines of the OECD Consensus Arrangement, has been instrumental in supporting contracts both large and small in sectors as diverse as electric power, telecommunications, environmental equipment and industrial machinery.
Almost all of the Canadian contracts supported by EDC to date have involved Chinese government-owned banks such as the State Development Bank, a key policy bank involved in the development of China's infrastructure projects.
To facilitate transaction support, EDC has credit facilities in place with the Bank of Communications (US$50 million), the Industrial and Commercial Bank of China (US$25 million), and the Export-Import Bank of China. These credit facilities allow for easy access by Canadian suppliers and Chinese buyers, as the terms of the financing have been established between EDC and the Chinese bank. EDC's credit facilities are ideal for small- or medium-sized transactions, and depending on the nature of the goods and services involved, repayment terms generally extend up to 10 years. (See outline of steps for accessing the facilities below.)
In addition to working with the three above-mentioned banks, EDC is happy to work with other key Chinese financial institutions such as China Development Bank, the Bank of China, China Construction Bank, and SinoSure. EDC is also able to work with foreign banks and selected two tier Chinese regional banks which are able to act as onlenders or guarantors for transactions.
How to access EDC's credit facilities
The buyer must apply to a Chinese bank to qualify for financing support.
The exporter should contact EDC in the early stages of the commercial discussions with the buyer, and provide EDC with:
- a description of the proposed transaction;
- a Canadian Benefits Report and other relevant technical and financial information on the exporter's business; and
- a draft copy of the commercial contract (when available).
Once the Chinese bank approves the transaction and the commercial contract is signed, it will submit an application for financing to EDC.
EDC will process the application and, if it's approved, respond with a formal offer of financing to the bank in China.
Once the financing offer has been accepted and all documentation has been submitted to EDC, EDC will pay the exporter directly on behalf of the borrower, according to the terms of the commercial contract.
Opening doors for SMEs
Thousands of small- and medium-sized enterprises (SMEs) rely on EDC's support. Some of the ways in which EDC is helping SMEs grow their export business in China include:
- Emerging Exporters Team, which focuses exclusively on helping smaller exporters manage risks associated with exporting. Exporters can access a team member by calling 1-888-332-4593. These small-business specialists can put insurance coverage in place on the spot and can approve sales to foreign buyers.
- SME Financial Services Team, which co-ordinates all EDC initiatives aimed at SME capital goods and services exporters.
- NORTHSTAR Trade Finance Inc., which, through a partnership with EDC, helps Canada's SMEs boost their competitive edge. NORTHSTAR provides loans ranging from $100,000 to $3 million to, primarily, buyers of capital goods or services. EDC insurance protects NORTHSTAR against buyer non-payment. Exporters can contact NORTHSTAR at 1-800-663-9288.
Support for new risk transactions in China
As the Chinese market continues to evolve, EDC is familiarising itself with issues related to transactions involving new risk (non-sovereign) structures, as well as the dynamic new Chinese entities involved. All creditors, including EDC, are struggling with some of the issues behind new risk transactions in China. However, EDC is well-positioned to consider providing support for creditworthy joint venture projects, as well as for projects involving corporate risk, commercial bank risk and project financing/limited recourse structures.
As part of its approach to addressing new risks, EDC now has an ongoing presence in China, and thus will gain enhanced market intelligence on issues relating to new risk transactions. Furthermore, EDC's business teams and financing and insurance specialists closely follow developments in the China market, helping EDC to underwrite new risks in support of Canadian exporters and investors.
As the process of commercialisation continues, EDC will consider providing support for new risk transactions on a case-by-case basis, taking into account risk mitigating factors such as:
- borrowers with U.S. dollar or hard-currency earnings;
- exporters having previous favourable experience with their buyers;
- involvement of foreign investors familiar to EDC in the project;
- involvement of a highly regarded local bank in the project;
- opportunity to risk share with highly regarded financial institutions;
- strong degree of government support/approval for the project;
- participants or sponsors being listed on a reputable stock exchange; and
- security previously having been successfully enforced in the market.
Each new risk transaction will, of course, be considered on its own merits, and early contact with EDC on potential transactions is highly recommended, given the challenges involved.
For more information about EDC support for doing business in China, call 1-888-332-3320 to contact an EDC office near you.
You may also contact the EDC's representative office in China
Chia Wan Liew, EDC Chief Representative
Tel.: (86-21) 3279-2832
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