China said to be considering easing stake restrictions for foreign life insurers

Regulator may allow wholly owned subsidiaries by foreign insurers, in biggest shakeup of the domestic industry in almost two decades

PUBLISHED : Tuesday, 21 February, 2017, 3:06pm
UPDATED : Tuesday, 21 February, 2017, 10:53pm

China is considering easing the 50 per cent ownership cap by overseas life insurers on domestic companies, in the biggest shakeup of the industry almost two decades since joining the World Trade Organisation.

The government is considering letting foreigners own more than 51 per cent of life insurers, to the extent of allowing them to be wholly foreign-owned, Bloomberg reported earlier, citing unidentified people familiar with the matter.

If put into practise, the moves could boost the market shares of international insurance players that have operations in China, most of which are run under a joint venture structure, while some companies already some have self-owned branches.

Dayton Wang, an analyst with Guotai Junan International, said he could see the potential moves being made as China is keen to introduce foreign capital inflow by loosening shareholding structures, and introducing more overseas practises and experience to the sector.

“However, it could still be hard for a foreign player to adapt to the Chinese financial environment, even if allowed to control a higher stake holding, as we have seen from what happened in the banking and brokerage sectors,” he added.

China has allowed foreign life companies to own up to 50 per cent in a joint venture in China since it entered the World Trade Organisation in 2000. But foreign players have complained that in some cases the shareholding structure deters the full development of operations.

Before then foreign insurance companies were approved on a case by case basis to operate in the China market, independently.

It could still be hard for a foreign player to adapt to the Chinese financial environment, even if allowed to control a higher stake holding, as we have seen from what happened in the banking and brokerage sectors
Dayton Wang, an analyst with Guotai Junan International

Former Chinese premier Zhu Rongji approved a branch of American International Group’s (AIG’s) life insurance unit to operate in Shanghai during his term as Shanghai mayor, with restrictions placed on product types and areas of business offered.

The China Insurance Regulatory Commission (CIRC) rejected an application by AIG to transform its life insurance branch into a wholly-owned subsidiary in 2007. The group later restructured and gave birth to the AIA Group.

“If this is true it will be good news,” said Rex Auyeung Pak-kuen, chairman of Asia region of US insurance and pension company Principal Financial Group.

His firm has a joint venture fund management company with China Construction Bank, in which CCB owns a majority 65 per cent, Principal has 25 per cent and state-owned China Huadian Corporation 10 per cent.

“China is already a major player in the global economy and such a move will signify the domestic economy is ready for more international competition,” Auyeung told the South China Morning Post.

“Furthermore, higher percentage ownerships will provide added confidence to foreign partners to introduce more advanced practises on product development, risk management and other internationally accepted procedures which effectively will benefit local customers and the industry.

“This would be welcome news to foreign companies wanting to increase their presence in China,” Auyeung told the Post.

AIA spokeswoman said the company would not comment on market rumour.

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