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Enoch Yiu

ONE OF THE final stumbling blocks to China's 15-year quest to enter the World Trade Organisation is a quarrel over life insurance.

Pension plans will take on new meaning this week as a battle over American International Group's (AIG) privileged position in the Chinese market heads for the WTO discussion table in Geneva.

Negotiators seeking to seal the final terms of China's accession are faced with a high-profile clash over a single company's future presence in the mainland.

Heavyweight AIG is seeking to expand its life-insurance operations in the mainland under current terms - the legacy of a decades-old relationship with China - which allow it to have 100 per cent-owned subsidiaries.

Other foreign-owned companies would be limited to 50 per cent ownership.

The stakes are high: with a population of 1.3 billion and a relatively untapped market for insurance products, the sector is expected to become one of the largest in the world.

The insurance giant has the backing of the United States Government in its fight against an enraged European Union and other European operators keen to expand in the vast market.

China's position is more murky: last week, AIG said it had assurances from the China Insurance Regulatory Commission that it would definitely not be forced to relinquish any part of its 100 per cent insurance operation.

This conflicts with an Asian Wall Street Journal  report in which a senior Chinese insurance regulator was quoted as saying the Beijing was considering forcing the company to sell half of its stake in its existing life-insurance operations when China joins the WTO.

At the same time, assurances were given to EU Trade Commissioner Pascal Lamy last week by Chinese trade minister Shi Guangsheng that the mainland would not treat US insurance companies better than their European counterparts.

China's dilemma is how to settle the AIG case to the satisfaction of both.

At issue is a 'grandfather' provision agreed between the US and China in 1999, which ensured that AIG held on to its right to establish wholly owned branches in the mainland.

AIG has stated: 'The preservation of acquired rights is a trade principle China has agreed to maintain in all of its WTO negotiations with other nations.'

However, other foreign insurers entering China's market after WTO accession must adhere to a 50-50 joint-venture limitation.

AIG built up its unique position on the basis of its historic presence in the mainland market, beginning in 1919 when the firm was born in Shanghai.

The company left China on the heels of the 1949 Communist Revolution, eventually returning in 1975 to invest millions in infrastructure projects.

It also formed close ties with senior Chinese leaders under the leadership of company chairman Maurice Greenberg.

This helped AIG secure eight of the 15 licences granted by the Chinese authorities to foreign insurance companies.

AIG also has another unique advantage, as the only foreign insurer which operates both life and general insurance businesses. Its counterparts are restricted to one or the other.

Unlike other foreign life-insurance firms, AIG also benefits from operating in four cities - in Shanghai alone, it has already captured 10 per cent of the life-insurance market.

'AIG was a trailblazer for the Chinese market and we are all grateful for their efforts in opening the market,' said Victor Apps, executive vice-president and general manager for Asia of Canadian-based insurer Manulife.

He supports AIG's bid to maintain 100 per cent ownership of its existing operation - but is opposed to any such set-up in the future.

'The logical compromise is to let them keep the 100 per cent-owned branches they already have, but expect them to use the joint venture in the future,' he said.

Others view the issue as a pivotal indicator whether China will ensure a level playing-field for all.

'This would give an important signal to the world that China is a fair and just market,' said China insurance expert Stuart Leckie, who runs his own consultancy firm.

'It is unacceptable for China to apply one rule on AIG but to apply another rule for the other insurance companies.

'China should apply the same rules for all companies.'

Nonetheless he also believes AIG should be able to maintain its 100 per cent privilege - for the near term. But in five to 10 years, he favours a forced sell-out of 50 per cent of AIG's stake.

Legislator for the insurance sector Bernard Charnwut Chan believes that AIG's history of nurtured relationships will work in its favour. Chinese officials would view AIG as a 'lost child who has returned home' rather than a purely foreign company.

However, according to Robert Knight, chief executive of British insurer Standard Life Group's Hong Kong office, this would damage confidence. His firm has yet to be granted a licence to operate in China.

'It is unfair for any single company to be allowed to operate in a different way than the other foreign insurers,' he said. 'If China wanted to show to the world that it is a world-class insurance market; if China wants to attract more foreign investment, it should show to the rest of the world that China would not give privilege to any single company.

'As a foreign investor, we would like to compete in the China market, which would provide a level playing field for everybody.'

John Snelgrove, general manager of AXA China Region, the local arm of the France-based AXA Group, concurred.

'China will be the largest insurance market in the world. It is not a case of if, but when. Any foreign insurer invited to participate in this exciting opportunity is privileged,' he said.

'We naturally would welcome a level playing field for all companies.'

Given the sheer size of the potential market, the push for equal footing on the part of European companies and the EU speaks for itself.

US companies take a different view. The issue raises wider implications for US firms who are wary of their government entering into trade deals which leave them effectively with less than they had before. Business groups in the US have backed AIG, sending a letter to the White House voicing their support.

AIG stands firm on the 1999 bilateral agreement between the US and China - and under laws passed that year by Congress granting China Permanent Normal Trading Relations status, all terms and conditions of the mainland's WTO accession must be equivalent to this agreement.

A bilateral accession agreement between the EU and China, however, seems to contradict this, stating that no preferential treatment would be afforded to any particular life-insurance company.

AIG blames the EU for raising the issue. 'The question of whether AIG would be allowed to continue to expand its branch operations on a wholly owned basis in China was never an issue in the negotiations until the European Union attempted, in its negotiations with China, to limit such expansion,' it said.

Graphic: wto11gbz



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