Page 332 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China
in the first quarter of 2017. The slowdown followed the insurance penetration rate (defined as premium volume
inclusion of the off-balance sheet WMP business into the as a percentage of GDP) of 4.2 percent in 2016 is far
Macro Prudential Assessment framework introduced by below the global average (ca. 6.2 percent). The 13th
China’s central bank. However, there have been delays Five Year Plan published by the Chinese government in
in publishing official data that would shed more light 2016 anticipates that the services sector’s share of GDP
on the impact of increasingly stringent regulations on will increase to 56 percent by 2020. The Plan anticipates
bond holdings by WMPs and the share of interbank a premium target of 4.5 trillion yuan for the insurance
investors in the banks’WMP business. If this data remain sector, and market penetration of 5 percent (Munich).
unavailable, the transparency of the shadow banking According to the country’s insurance regulator, China’s
sector would worsen (Moody’s). insurance industry has kept its risks under control, with
a sound solvency ratio. The industry’s comprehensive
Moody’s Investors Service said in July 2017 that solvency adequacy ratio stood at 238 percent at the
progress by the Chinese authorities to rein in credit end of the first quarter of 2017, well above the 100
growth and enhance oversight of shadow banking was percent requirement, said China Insurance Regulatory
encouraging and it no longer hald a “negative” view on Commission (CIRC) in an online statement released
China’s banking system as risks appeared to have eased. in May 2017. Core solvency adequacy ratio stood at
Over the last two years, many Chinese banks have 221 percent, also above the 50 percent requirement,
struggled to record even 1 percent growth in profits indicating sufficient core capital of companies to
due to soaring bad debt and loan defaults. Now, the meet their obligations. The risks for the industry are
banks’ fortunes, especially those of the big five, may “controllable in general”, but authorities should not
improve in 2017. “I think there’s probably some upward underestimate risks arising from particular areas, the
bias to earnings this year [2017]. For the big banks at statement said. China’s financial regulators have recently
least, I think margins should improve, loan growth is strengthened oversight and issued stiffer punishments
better and provisions should come down,” said Matthew to remedy shortcomings and promote efficiency (Song).
Phan, Senior Analyst at CreditSights. Still, he added, he China continues to have an economy that is growing
was concerned that the asset quality recovery could be at about 6% to 6.5% over the next three years and
short and shallow. “The property market looks like it about 5-6% for a few years afterward. China’s middle
could slow, and this will lead the entire economy down, and affluent classes continue to grow. This has and
leading to fresh concerns about bank [non-performing will continue to see a growing insurance and financial
loans]. Though I think that’s a 2018 question, not a 2017 market. China is shifting from family and village support
question” (Yen). China’s biggest challenge is creating a to insurance and other developed approaches. China’s
growing, sustainable economy allowing businesses to health and life insurance markets will more than double
prosper and individual investors to reap the rewards by 2030. It will likely double by about 2026 from 2017
for their risk. However, unless immediate and necessary levels (Wang).
changes are made to China’s banking system, it will be
difficult for any type of long or short term economic Global insurance premium reached more than $3.8
stability. Banking liberalization policies will be difficult trillion in 2016 — a new record high — and China
to implement if the central government insists on appears to be a factor behind much of the growth,
maintaining authoritarian control and keeping politics according to the latest projections from Allianz
and favoritism at the top of its agenda (Guarino). Research. The number, excluding health insurance,
reflects a 4.4 percent increase over the previous year.
Insurance That’s nearly $160 billion of additional premium over
2015, about $74.6 billion of which came from China, the
The finance sector grew particularly strongly with Allianz Research calculation noted. “That means [China]
value creation moving up about 11 percent per year is responsible for close to half of last year’s growth,”
on average from 2012 to 2016. Further structural Allianz Research noted. “Without China, the insurance
change toward a knowledge- or ideas-based economy world would have achieved growth of only 2.7 percent.”
is being pursued not only in the IT, communication, Much of that growth in China came in the life insurance
pharmaceutical and banking sectors, but is also being segment, which reflects just under two thirds of global
influenced to a great extent by the insurance industry. insurance premiums. Without its rapid development (30
China offers considerable catch-up potential. The percent growth in the Chinese life insurance market),
332
in the first quarter of 2017. The slowdown followed the insurance penetration rate (defined as premium volume
inclusion of the off-balance sheet WMP business into the as a percentage of GDP) of 4.2 percent in 2016 is far
Macro Prudential Assessment framework introduced by below the global average (ca. 6.2 percent). The 13th
China’s central bank. However, there have been delays Five Year Plan published by the Chinese government in
in publishing official data that would shed more light 2016 anticipates that the services sector’s share of GDP
on the impact of increasingly stringent regulations on will increase to 56 percent by 2020. The Plan anticipates
bond holdings by WMPs and the share of interbank a premium target of 4.5 trillion yuan for the insurance
investors in the banks’WMP business. If this data remain sector, and market penetration of 5 percent (Munich).
unavailable, the transparency of the shadow banking According to the country’s insurance regulator, China’s
sector would worsen (Moody’s). insurance industry has kept its risks under control, with
a sound solvency ratio. The industry’s comprehensive
Moody’s Investors Service said in July 2017 that solvency adequacy ratio stood at 238 percent at the
progress by the Chinese authorities to rein in credit end of the first quarter of 2017, well above the 100
growth and enhance oversight of shadow banking was percent requirement, said China Insurance Regulatory
encouraging and it no longer hald a “negative” view on Commission (CIRC) in an online statement released
China’s banking system as risks appeared to have eased. in May 2017. Core solvency adequacy ratio stood at
Over the last two years, many Chinese banks have 221 percent, also above the 50 percent requirement,
struggled to record even 1 percent growth in profits indicating sufficient core capital of companies to
due to soaring bad debt and loan defaults. Now, the meet their obligations. The risks for the industry are
banks’ fortunes, especially those of the big five, may “controllable in general”, but authorities should not
improve in 2017. “I think there’s probably some upward underestimate risks arising from particular areas, the
bias to earnings this year [2017]. For the big banks at statement said. China’s financial regulators have recently
least, I think margins should improve, loan growth is strengthened oversight and issued stiffer punishments
better and provisions should come down,” said Matthew to remedy shortcomings and promote efficiency (Song).
Phan, Senior Analyst at CreditSights. Still, he added, he China continues to have an economy that is growing
was concerned that the asset quality recovery could be at about 6% to 6.5% over the next three years and
short and shallow. “The property market looks like it about 5-6% for a few years afterward. China’s middle
could slow, and this will lead the entire economy down, and affluent classes continue to grow. This has and
leading to fresh concerns about bank [non-performing will continue to see a growing insurance and financial
loans]. Though I think that’s a 2018 question, not a 2017 market. China is shifting from family and village support
question” (Yen). China’s biggest challenge is creating a to insurance and other developed approaches. China’s
growing, sustainable economy allowing businesses to health and life insurance markets will more than double
prosper and individual investors to reap the rewards by 2030. It will likely double by about 2026 from 2017
for their risk. However, unless immediate and necessary levels (Wang).
changes are made to China’s banking system, it will be
difficult for any type of long or short term economic Global insurance premium reached more than $3.8
stability. Banking liberalization policies will be difficult trillion in 2016 — a new record high — and China
to implement if the central government insists on appears to be a factor behind much of the growth,
maintaining authoritarian control and keeping politics according to the latest projections from Allianz
and favoritism at the top of its agenda (Guarino). Research. The number, excluding health insurance,
reflects a 4.4 percent increase over the previous year.
Insurance That’s nearly $160 billion of additional premium over
2015, about $74.6 billion of which came from China, the
The finance sector grew particularly strongly with Allianz Research calculation noted. “That means [China]
value creation moving up about 11 percent per year is responsible for close to half of last year’s growth,”
on average from 2012 to 2016. Further structural Allianz Research noted. “Without China, the insurance
change toward a knowledge- or ideas-based economy world would have achieved growth of only 2.7 percent.”
is being pursued not only in the IT, communication, Much of that growth in China came in the life insurance
pharmaceutical and banking sectors, but is also being segment, which reflects just under two thirds of global
influenced to a great extent by the insurance industry. insurance premiums. Without its rapid development (30
China offers considerable catch-up potential. The percent growth in the Chinese life insurance market),
332
