(Announced on April 29, 2010)

　　
　　According to relevant provisions prescribed in the Audit Law of the People’s Republic of China, from February to July 2009, the National Audit Office conducted audits of assets and liabilities, profits and losses of China Export & Credit Insurance Corporation (hereinafter referred to as “Sinosure”) in 2008.

　　1. Basic Situation and Overall Assessment

   The audit results indicate that in recent years, Sinosure, in concert with diplomatic and foreign trade strategies of the state, has gradually expanded its scope of export credit insurance and created new insurance products, thus playing an active role in developing service functions of insurance.

(1) The Sinosure gradually expanded the scope of export credit insurance and promoted the development of foreign trade. From 2006 to 2008, the underwriting amount of export credit insurance and other relevant insurances rose from 29.224 billion USD to 48.964 billion USD and the number of valid insurance policy holders went up from 3,220 to 4,421, thus vigorously supporting the exportation of foreign trade of our country.

(2) The Sinosure actively dealt with the world-wide financial crisis and played its significant part in guaranteeing exportation. Since the global financial crisis broke out, Sinosure had been energetically adjusting its development goals for business and expanding coverage of export credit insurance. In the first half of 2009,  the underwriting amount of export credit insurance and other relevant guarantee business reached 25.987 billion USD and the number of valid insurance policy holders increased to 5.996. In June, underwriting amount of short-term export credit insurance witnessed an increase of 101.98% as compared with that of June the previous year.
　　

 (3) The Sinosure tried hard to present new products and incessantly expanded its service functions. With credit insurance as the core Sinosure successively presented the new business of trade credit insurance for Yiwu ─ a city of small merchandises in China, providing several value-added services for enterprises and expanding credit insurance functions and providing enterprises with fund-raising convenience for trade under the item of credit insurance.
　　

 (4) The Sinosure gradually improved its strength of internal control so as to ensure its solvency. In recent years it set up a risk assessment system of management of national risks and other systems in the light of its own operation characters. At the end of 2008 and in the first quarter of 2009 its solvency adequacy ratio far exceeded the lowest statutory requirement ─ 100%.

.
　　However, the audit also found that there were some regulation-violating problems in its operation and weak links in internal management and risk control. Its functions in executing policies of the state were not sufficiently brought into play.
　　

 (1) Regulation-violating operation involving 0.364 billion RMB

Firstly, there were cases of regulation-violating advance compensation, carry-over, return of revenue of insurance premiums and regulation-violating payment of commissions, in which 15.1991 million RMB was involved. For example, in October 2003, although Sinosure was well aware that the project was not a case of insured liability, it compensated the policy holder1.5449 million USD (12.8765 million RMB) in advance. As the guarantee measures were not in place, the amount of advance compensation might be most probably lost.

Secondly, Sinosure undercounted the revenue from insurance premiums. Without approval by the Ministry of Finance it purchased fixed assets and its debt-paying assets was not administered in accounts. It over-listed 348.6421 million RMB as expenditure. For example, from 2007 to 2008 Sinosure placed 34.74 million USD (237.434 million RMB) under the item of “advanced insurance premium” instead of that of “revenue of insurance premium”.

(2) Management of operation was not standardized and there were risks in some business.

Firstly, there were weak links in its internal control and some of business operation was not normalized. Mainly, supervision over insurance after insurance was accepted was not well in place, risk control was not perfect, links within internal management was not well connected and there was excessive range of insurance acceptance.
　

Secondly, there were risks in some business sections. Mainly, degree of concentration of risks in insurance for domestic trade was comparatively high, information collecting channels were restricted, statue of limitation of mastery of information was not long enough, some of the insurances were oriented towards fund raising and guard against fraud risks in fund-raising policies was not strong enough; as there was not enough concern over the risks in fund raising guarantee, regulatory-process-violating guarantee, insufficient management after insurance acceptance and difficulty in monitoring funds, large amounts of commutation occurred; some of the functions of overall business information system were not good enough.
　　

 (3) Problems in functions of implementing government policies

Firstly, the proportion of the amount of export insurance for agricultural produces in the total amount of short-term insurance tended to drop with every passing year. In particular, the support to leading enterprises of agricultural produces was comparatively not strong enough. Secondly, industry-related and region-related policies of the state were not sufficiently implemented. From 2006 to 2008, Sinosure’s short-term insurance amount for iron alloy, which was one of the products turned out by high-polluting or high-energy-consuming enterprises or enterprises with excessive production capability or industries that produce resources, tended to rise with every passing year and its premium rate was lower than the then average short-term premium rate. Thirdly, the proportion of premium amount of medium-and-long-term insurance was smaller and was inclined to drop every year, thus the scope of support of exportation of service industry was comparatively small.  
　

　　Regarding the fore-mentioned problems, the National Audit Office issued an audit report according to relevant laws and made audit decisions. Problems pertaining to Sinosure’s inadequate performing of its functions of implementing policies of the state, its statute-violating practices in operation and its failure to abide by standardization in its operation and management were handed over to the Ministry of Finance; statute-violating cases in financial revenue and expenditure were properly dealt with according to relevant regulations and Sinosure was instructed to look into the responsibility of relevant personnel; the one case suspected of crime commitment was handed over to the judicial organ for investigation and prosecution.

 

Regarding the problems found in auditing, the National Audit Office suggests that Sinosure further enhance its capacity of performing its duty of executing policies of the state, standardize its operation and financial accounting and uplift its risk management capability in its commercialized operation.

Attaching great importance to the problems found, Sinosure instructed relevant departments to make a special study and conducted rectification of the problems one by one. Firstly, Sinosure revised and made better relevant regulatory systems and normalized operation procedures. During the audit, 47 regulatory items made their appearance and 35 regulatory items were formulated and put into practice when the audit was over. Another 19 regulatory items are still under consideration. For example,  in order to strengthen its support of exportation of agricultural produces, the Guiding Suggestions for Strengthening Marketing of Short-Term Credit Insurance of Industry of Agricultural Produces was formulated; in order to carry out industry-related and region-related policies of the state, Sinosure released the Guiding Suggestions on Strengthening Marketing of Short-Term Export Credit Insurance of Mechanical and Electrical Products; to specify detailed rules and regulations for settlement of claims, it released the Regulations for Information Gathering for Settlement of Claims for Short-Term Export Credit Insurance (Interim). Secondly, the process of various work and key points of risk control were straightened out; the work process was standardized, internal management intensified and control measures for business risks improved. For instance, as for comparatively risky domestic trade insurance, Sinosure gradually adjusted the degree of concentration of risks and performed stricter examination of insurance policies related to fund raising; as for fund-raising guarantee business, insurance acceptance was separated from risk assessment and risk supervision and control. Strict counter-guarantee measures were applied to all new guarantee projects.