Overseas letter of guarantee involves different countries and jurisdictions, so that domestic enterprises and banks face different political risks, and the transaction of letter of guarantee becomes more complicated。Some overseas guarantee disputes have indeed brought some risks and losses to domestic enterprises and banks。

Causes of overseas guarantee risk

    The causes of risk can be summarized as follows:

    One is the failure to put the primary and secondary relationship between the basic transaction and the guarantee business in the right position。The risk of trade finance is mainly the risk of basic transaction, but the independence of letter of credit and guarantee is often overemphasized in the business, so that the basic transaction is ignored。Basic transaction is the source of guarantee business. If the source goes wrong, it will affect the guarantee instrument。The underlying transaction includes the project signed by the parties, the project contract and the position of the parties to the project contract in the transaction。

    Second, there is insufficient understanding of national risks。International projects involve other countries, which is a strange place for domestic companies, so it is necessary to make a correct assessment of the governments, political situations and political systems of different countries。The political system of a mature country is relatively stable, and there will not be too much change in the situation. Even if the political situation changes, the impact on the formation of the project is limited.Immature countries are those that are easily transitioned or in the process of transition。At present, most of China's engineering projects are in immature countries, once the situation changes in these countries, if there is a misjudgment of the situation, it will affect the project and form a letter of guarantee dispute。For example, the engineering projects in Iraq and Libya, the former due to the fall of Saddam's regime, the latter due to the fall of Gaddafi's regime, have had a negative impact on China's engineering projects, and there have been some disputes over letters of guarantee。
    Third, the qualifications and business level of domestic enterprises are different at home and abroad。Although some domestic enterprises have good business qualifications in the domestic market, they lack the experience and level of the international market, especially the grasp of the level of engineering and the level of internal and external communication。As international engineering projects, each country's evaluation standards are different, therefore, if Chinese enterprises win overseas engineering project bidding only by price, but they do not have sufficient experience and level of overseas engineering, it may cause hidden dangers to the normal progress of their overseas projects。One example: in 2007, an application for a performance bond to Southeast Asia was contacted by the local branch, which immediately sent negative news about the domestic company in the newspaper, mainly related to qualification issues。In view of this, although there are first-class domestic banks to provide counter-guarantee, we still think that the issuance of this guarantee will form a great risk, so politely refused the application of domestic banks。One guarantee dispute handled in 2008 was caused by poor communication with customers。The domestic enterprise is also well-known in the domestic market, but it is relatively unfamiliar to foreign operations。Since the project is in the Middle East and the owners are mostly Indian or Pakistani, it will be difficult to deal with the owners without strong communication skills。Due to the lack of timely communication, the visa of domestic workers expires, they are forced to return home, and the project is interrupted, forming a letter of guarantee claim。Due to the completion of the project and the lack of detail in the guarantee, the two sides disagreed on the amount of the claim: the owner demanded full compensation, while the domestic enterprise believed that only the delayed part should be paid。