Good Timing to Enter China for Western Bank and Insurance Company

Western Banks in China

China’s accession to the WTO (World Trade Organization) is anticipated to make possibilities for foreign banks. In the quality of milestone move to honor its WTO responsibility, China published the Rules for Realizing the Regulations Governing Foreign Financial Institutions in the People’s Republic of China on January 2002.

Rules consist of comprehensive regulations for realizing the administration of the organization, registration, sphere of business, qualification, oversight, disbandment, and elimination of foreign financial institutions. Moreover, they envisage that foreign bank is also conducting all aspects of foreign-currency business and all aspects of RMB business to all kinds of clients are required:

  •    to have operating capital of at least 600 million RMB (USD$72.3 million)
  •    at least 400 million RMB (US$48.2 million) of 600 million must be held in RMB
  •    at least 200 million RMB (US$24.1 million) in freely convertible currency.

Customer’s limitations on foreign currency business were removed immediately after China’s accession into the WTO on December 11, 2001. From that moment, foreign financial institutions have been allowed to supply foreign currency services to Chinese companies and individuals and have been allowed to supply local currency business to all Chinese customers by the end of 2006.

In 2007 five non-mainland banks were permitted to release bank cards in China, with Bank of East Asia also permitted to release UnionPay credit cards in the mainland. In May 2009 Woori Bank became the first Korean bank permitted to release UnionPay debit cards (it releases UnionPay credit cards only in Korea).

China’s huge bond market is more budding, with a great institutional consumer base that is known as the territory for western banks. Now nothing can stop companies from doing overseas unification and purchasing for Chinese customers now, but this can also cause more work. Companies can syndicate funds and arrears to finance cross-border absorptions by Chinese clients. They can also do domestic deals like loss-leaders to conquer bigger M&A (Mergers and Acquisitions) mandates abroad – that is not easy in the current setup.

What if the best time is … NOW?

In April 2018 Chinese regulators begun permitting foreign companies to apply for most stakes in stocks and mutual-fund management ventures and pledged to allow full regulation in three years.

On January 21st China and Germany signed few agreements to reinforce collaboration in financial sector supervision and banking because Beijing is going to open up the country’s financial markets and Frankfurt wants itself to become EU’s finance powerhouse after Brexit.

German insurers can now establish wholly-owned insurance operations in China, while Chinese players are welcome to conduct reinsurance business in Germany.

Both sides said in a cooperative declaration that “they will strengthen macroeconomic policy coordination and pragmatic cooperation in the fiscal and financial fields and expand strategic cooperation”. China is the world’s second-largest economy, while Germany is the fourth largest.

Moreover, German banks can now request to become initial distributors in the open market operations of the People’s Bank of China (PBOC).

The declaration said Germany welcomes China to keep successfully open up its financial sector, then the Chinese side said it welcomes competent German financial institutions into the Chinese market, and the German side welcomes competent Chinese financial institutions into the German market.

Western insurance in China

Projects will conduct to the “development of a quasi-municipal bond market”, – assumed Douglas Morton, head of Asia research at Northern Trust Capital Markets.

He sees increasing possibilities for western financial institutions because China wants to draw domestic savings into expanding insurance and pension infrastructure while financing infrastructure projects out of its borders.

Since western-style expertise is more common, the Chinese financial sector, nowadays focused mostly on its local economy, could become more like western institutions in supplying more complex services.

Western insurance company’s bosses like to praise the great opportunity for increasing in China. China will be its “fastest-growing market . . . for many years to come”, – says Prudential’s head of Asia. The chief executive of Allianz calls it like “strategic market”.

Given huge China’s population and the comparatively low percentage of people who have insurance, this enthusiasm is quite clear. For example, just 114m Chinese people have life insurance, out of a population size of 1.4bn.

Now overseas insurers are preparing for a serious push in China, hoping to take the long-awaited mitigation of overseas ownership regalement as a trampoline.

But the big overseas companies have attempted to make their existence palpable against the local giants. In spite of their working in China for a dozen years, their consolidated market share is under 50%.

Experts have forewarned that the country’s enormous army of insurance agents and rigid domestic rules are probably to restrain the advance by global businesses.

After entering the World Trade Organization in 2003, China has been under pushing to open its financial services industry to overseas players. Modifications have come slowly, and Beijing has been charged to hang the prospect of greater control in front of some of the world’s largest banks and insurers while at the same time avoiding real reforms.

Amid the first foreign financial companies admitted in the country were overseas insurers, beginning in the middle of the 1990s when Manulife initiated collaborative enterprise with chemicals group Sinochem. Most of the overseas insurers have been permitted 50% wielding but other considerable reforms have substantially stalled.

Top leadership created facilities and schedules for what was reputed as year’s breakout to let overseas banking, insurance companies, securities and management of assets to raise their stakes in collaborative enterprises and, in some instances, get a full adjustment.

Foreign insurers have paid attention to it. France’s Axa has purchased the 50% of Chinese collaborative enterprises Axa Tianping that it didn’t yet govern, in the deal that was marked as the first industry in China. Germany’s Allianz, at that time, has got an endorsement to build a 100% owned holding corporation in the country.

Shifts came few years in advance of a deadline which was laid in April, an omen that China is under pressure to demonstrate real shifts in how it refers to overseas financial companies.

Oliver Bite, the Allianz executive director, said: “The Chinese leadership handheld back for a long time, and now has decided to open”.

Other overseas companies are interested in share increase. “We’d like to have a bigger share of our collaborative venture in China, but it should be juridically feasible and we would need the full accord of our partner”, – said Philippe Donnet, executive director of Generali.

UK-based Prudential also would like to increase its stakes in its two Chinese joint ventures to above 50%, viewing China as one of the big drivers of its growth in Asia. In September it signed a deal with the government to help develop the country’s pension system.

Chinese insurance companies now have the biggest base of agents in the world, a power that will protect from infringements of new companies into the market. For instance, China Life has nearly 2m agents. Ping An has more than 1m.

Leadership has claimed that the policy for overseas firms should not to conduct a war with local competition. On the contrary, they should to goal on spheres of force.

Permitting overseas firms to own 100% would not eliminate a lot of the other regulatory problems they face, which are exactly affirmation to extend around different provinces. Before firms will widen, they should have consent from provincial insurance leaders.

Even though Hong Kong AIA has kept 100% of its business in the country for a few dozens, an anomaly which was referred to its early foundations in China almost a centenary ago. Now AIA can work just in four cities and two provinces.

Sam Radwan, Enhance International‘s principal said that administration has different levers to pull by confirming businesses province by province”, “If I was an overseas insurer, I wouldn’t be popping the champagne right now.”

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