Thursday, May 24, 2018

Foreign firms in China rush

Foreign insurers are leaping at the opportunity to extend their presence in China Xi Jinping’s announcement early last month of a series of financial liberalisation initiatives aimed at opening the Chinese market to foreign operators.

In response to Xi’s remarks, Shanghai said last weekend that it would implement reforms aimed at foreign insurers, securities firms and asset managers as part of its bid to become an international financial centre.

Willis, FWD, Axa and Allianz have all taken steps this month to solidify their Chinese operations.

One of the fast-tracked reforms allows foreign-funded insurance brokers to compete on a level playing field with their Chinese counterparts and on Tuesday China’s Banking and Insurance Regulatory Commission (CBIRC) approved Willis Insurance Brokers as the first fully licensed foreign broker to transact all insurance business in China. The company claims to have been one of the first foreign insurance brokers to enter the Chinese market, with a presence dating back to 1994.

“Combined with our global knowledge and experience, the extended license to operate in China enables us to further grow our business with existing and new clients and opens up many new potential opportunities over time,” said Wise Xu, head of Willis Insurance Brokers China.

Another of the reforms allows foreign businesses to own up to 51% of the shares in life insurance joint ventures, with a plan for the cap to be phased out over three years — and the Shanghai Financial Service Office said on its website on Monday that FWD has applied to form such a joint venture in the city.

The Hong Kong-based company, which is a unit of Richard Li’s Pacific Century Group, will own the maximum permissible stake in the JV alongside un-named Chinese partners. FWD has not made a statement on the application but was quoted as saying that it sees “a significant opportunity in China to meet the financial and insurance needs of mainland customers”. It first opened a representative office in Shanghai in 2014.

Meanwhile, Allianz is reportedly setting up a holding company in Shanghai to oversee its operations in the country, according to the financial service office. Allianz reportedly said on Monday that it is “in talks with the Chinese authorities to advance its growth agenda in China”.

CBIRC has also been unwinding some of the tough measures introduced as part of its predecessor’s crackdown on insurance investments, with ICBC and Axa’s life insurance joint venture becoming the first to win approval from the new regulator to set up an asset management subsidiary, after CIRC suspended such approvals last year. The unit will be based in Shanghai with registered capital of Rmb100 million (US$15.7 million). Axa has been partnering with ICBC in China since 2012.

Banks are also angling for a bigger presence in China in response to the apparent relaxation of controls on foreign institutions, with Switzerland’s UBS applying to take a controlling 51% stake in its Beijing-based securities joint venture, raising its ownership from 24%.

China has played down the extent to which this new, friendlier approach is a response to the trade war rhetoric from Donald Trump, but the tough approach from the US has clearly ruffled feathers — and the pressure isn’t just from the president. The US Commerce Department recently banned American companies from selling hardware or services to smartphone maker ZTE for seven years, effectively forcing the company to mothball its operations, after it violated sanctions against Iran and North Korea and refused to fire the employees involved.

The ban is now a bargaining chip for the US as it negotiates a broader trade deal, though Trump himself seemed to undermine this last weekend by calling on commerce officials to help ZTE “get back into business, fast” on Twitter, apparently in response to communication with Xi.

It remains to be seen if the negotiations, which have yet to begin in earnest, will yield more concessions for foreign insurers, which have been striving for greater access to China’s domestic market since before its accession to the WTO in 2001.

As the past few weeks have shown, even if China only opens the door slightly wider, there are plenty of foreign players keen to invest in operations there. And after the past two decades of rapid economic growth, the domestic insurers are now a vast and dominant presence in the market. If they are not yet ready to compete, they never will be.

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