Money Matters

A US$60m HK life policy will do to get money out of China

Until recently a card swipe was all it took, but despite clampdown there are ways around it

PUBLISHED : Friday, 25 March, 2016, 5:02pm
UPDATED : Friday, 25 March, 2016, 11:14pm

George recently bought a US$60 million life insurance policy in Hong Kong. The mainland private entrepreneur had many reasons to do so.

George was terrified.

One of his acquaintances had been stopped at the airport, put in a room under a painfully sharp light and denied sleep for 72 hours by anti-corruption enforcers seeking information to use against a senior provincial official. Another was kicked and punched for refusing to speak.

He didn’t think about death but the future. He needed to move his money out of the country.

There is no easier way to move a large sum out of the country than by signing an insurance policy with a Hong Kong broker.

Just swipe your card. Until last month, multimillion yuans could be paid in insurance premiums with a Union Pay card. As long as the money headed to an insurer’s account, the regulators asked no questions.

So in minutes, George turned 130 million yuan in Mainland China into US$20 million in Hong Kong. All it required were several cards linked to different bank accounts.

Alternatives such as buying a flat or business here are far too cumbersome. Trafficking the cash on speed boat is too dangerous.

Thanks to the safe and speedy transfer, 22 cents in every dollar of new insurance money paid last year came from mainland visitors. A decade ago, it was only six cents.

The size of policy has also swollen. The single premium involved in each policy for the mainlanders has more than tripled to HK$3.6 million with the past three years showing dramatic growth, according to statistics from the Commissioner of Insurance.

What concerned George was not just the cash. An insurance policy also set free the value of his business listed in Shanghai, at least to a certain extent.

The price tag of his controlling stake had risen to multibillion yuan since its listing. Yet in a country where majority shareholders need approval to sell any stake, that is paper wealth.

In Hong Kong, his significance as the key man and controlling shareholder got to “materialise” in the amount assured by the policy.

If he got struck by a thunder bolt tomorrow, his wife won’t have to wait for the prolonged sale of the listed shareholding after pooling billions of yuan to pay off the estate duty as required by mainland laws. The Hong Kong insurance would make it less painful.

His business friends love the policies for a different reason – to cheer up or gag their handful if not dozens of mistresses. Each of the women has a policy that names her as the benefactor should their sugar daddy go to heaven.

Hopefully, the financial security would discourage the women from going to the wives or the anti-corruption officers. After all, a mistress always knows more than the wife.

George did not have a big-mouth concubine to worry about. He did, however, share the gambler spirit of his peers.

The leverage and therefore gain provided by the insurance is appealing. The truth is private bankers scrambled to offer loans pledged against the insurance policy.

In fact, George was introduced to the insurer by his private banker who volunteered to loan him 70 per cent of the premium. He chose to pay with his own money but borrowed US$14 million from the banks at 1.5 per cent interest.

He invested the money in some prime bonds that pay 5 to 6 per cent. He then pledged the bond for US$7 million to invest in stocks with 3 to 4 per cent return.

Minus the cost of the loan, he is looking at a 6 per cent gain. That is on top of the 3 to 4 per cent return from the insurance policy.

What business is churning out such a mouth watering return nowadays in the mainland?

No wonder mainlanders have flocked into the city and signed HK$12 billion worth of new policies last year. That is fivefold more than the record before the anti-corruption campaign.

“A village came before the Lunar New Year,” said an agent.

Yet that counted for only those who arrived with a mainland identity card. An industry source estimated a total of HK$30 billion yuan if mainlanders with foreign passports or Hong Kong Identity cards were included.

Unsurprisingly, regulators up north slammed the door to ease the pressure on the yuan last month. They capped the daily transfer of insurance premiums via a card at US$5,000.

Yet, rules are meant to be broken. The flaw is in the word “daily”.

At least one state-owned bank is known to offer bridging loans to pay the premium while locking in the daily transfer as repayment. It is painstaking but profitable.