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
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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
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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.
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PART IIRecent Development of
China’s Surety Market
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Recent Development of China’s Surety Market
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
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Recent Development of China’s Surety Market
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.
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Recent Development of China’s Surety Market
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.
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Recent Development of China’s Surety Market
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)
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Recent Development of China’s Surety Market
3. Major Local Market Participants
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.
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Recent Development of China’s Surety Market
3.3 Guaranty Companies: gradually infiltrate
3. Major Local Market Participants
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
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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.
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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
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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.
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Exploration and Achievements of China I&G
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.
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Exploration and Achievements of China I&G
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
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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
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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.
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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.