Speaking at the 2022 Asian Financial Forum in Hong Kong on 10 January, Xiao Xuanqi, Vice Chairman of the China Banking and Insurance Regulatory Commission (CBIRC), advocated for a further deepening of financial relations between mainland China and Hong Kong, thus continuing the gradual financial market opening.
Besides underlining that China has much to learn from Hong Kong’s experience as a major international financial center, Xiao highlighted challenges facing China’s financial system and trends that foreign financial firms, particularly (re)insurers should continue to look out for.
In light of China’s rapid demographic transition, Xiao argued, China should learn from Hong Kong’s experience with health and endowment insurance, as the territory enjoys the world’s longest life expectancy. China shall draw on international expertise to build a strong and diverse financial service industry to help manage China’s looming demographic crisis.
Xiao’s remarks follow last month’s approval for HSBC to take full ownership of HSBC Life China, its Chinese life insurance joint venture, as well as a CBIRC notice on the relaxation of market entrance conditions for foreign insurance intermediaries.
According to Xiao, China’s demand for reinsurance continues to expand and, due to the sector’s complexity, requires a wide array of competent institutions and talents. Also, he sees strong potential for Fintech, and despite recent defaults in the property market, he notes that China’s wealth management market is equally set to continue growing.
Further, he pointed out that a period of globally loose monetary and fiscal policy is set to expire and that major economies should more closely coordinate on monetary policy. Efforts should be made to pull back rising inflation. In the same vein, speaking virtually at the WEF on Jan 17, president Xi Jinping warned of “negative spillovers” should major economies “U-turn” in their monetary policies, presenting challenges to global economic and financial stability.
While the PBOC is set to keep slightly easing its monetary policy to support economic growth in 2022, monetary tightening in major economies could hamper Chinese growth, which is set to continue its slowdown due to inflationary risks, real estate sector fragility, a mounting energy price crisis, as well as prolonged supply-side issues such Covid related production and supply chain shocks or industrial overcapacity.
Despite geopolitical tensions, which have also reverberated into the insurance sector (e.g., CBIRC last year added new national security reviews to the rules on foreign ownership in life insurance), foreign (re)insurers should expect relaxation of market entry rules ongoing since 2019 to continue.
In view of Xiao’s remarks on reinsurance, coupled with his comments that China’s financial sector requires talent familiar with domestic conditions and possessing international know-how, foreign (re)insurers should expect continued efforts by Chinese regulators to support the expansion and deepening of the sector. This follows recent policies by the CBIRC and the Shanghai Municipal Government to develop Shanghai into a reinsurance hub, including through supporting domestic and foreign reinsurers to establish entities in the city, as well as piloting cross-border reinsurance transactions.
While insurance penetration in China still lags that of major economies, China has one of highest Fintech adoption rates and consumer data is cheaply and widely available, pointing to further growth potential for Fintech applications in the insurance sector. Nevertheless, traditional distribution channels continue to dominate in certain areas such as life insurance.
Increased efforts to support an expansion of insurance products could help increase the variety of investment opportunities for China’s population. Limited onshore investment options, low deposit yields and persistence of capital controls have contributed to unabated demand growth for so-called Wealth Management Products, which have played a significant role in propping up China’s overheated property market.
While the insurance sector continues to be supported by a strong cyclical recovery, a continued slowdown in economic growth could also decelerate insurance industry growth rates, where expected premiums are expected to grow at a lower rate than last year.
Shanghai Municipal Government: 中国银保监会 上海市人民政府关于推进上海国际再保险中心建设的指导意见