Page 336 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China

China’s insurance industry premium income is banks from using borrowed money to invest in bonds,
expected to grow at a slower pace in 2017 due to tighter which in turn has pushed bond yields to two-year
regulations, the country’s top insurance regulator said. highs and wiped $38 billion from the share prices of
Total premium income in 2016 rose 27.5 percent from Chinese banks. Moody’s downgraded China’s sovereign
a year earlier to 3.1 trillion yuan, marking the fastest ratings in May 2017, saying it expected the world’s
pace of growth since 2008, Duan Haizhou, an official second largest economy to erode as its debt rises and
with the CIRC, said at a February 2017 press conference growth slows — and the problem of shadow banking
in Beijing. Total insurance industry assets stood at 15.12 was cited as a specific problem. “If in the future China’s
trillion yuan at the end of 2016, representing a 22.3 structural reforms can prevent its leverage from rising
percent increase from the start of the year. The sector’s more effectively without increasing risks in the banking
rapid growth is likely to slow down in 2017 as CIRC will and shadow banking sector, then it will have a positive
impose tighter regulations for financial deleveraging impact on China’s rating,” Li Xiujun, the Vice President
and risk prevention, Duan said. Authorities have of Credit Strategy and Standards at the ratings agency,
rolled out a series of measures early in 2017 aimed at said (Colson).
limiting risks in the industry, preventing asset-liabilities
mismatches and speculative acquisitions. The measures The biggest challenge facing China in its drive for
include the tightening of control over short- and financial inclusion has been how to expand banking
mid-term life insurance products, the curbing of risks services to private businesses and individuals. The
associated with property insurance products and the country’s financial sector is dominated by state-owned
stepping up of compliance management for insurers. commercial banks, which favor SOEs. The system is
In January 2017, CIRC brought back ceilings on funds imbalanced. But the widespread adoption of internet-
that insurers can invest in the stock market, restricting based technology, especially on mobile devices, is
equity investments to no more than 30 percent of total helping to close that gap. Web-based finance is growing
assets, while limiting investment in a single stock to no rapidly and is supplementing the traditional financial
more than 5 percent of their total assets. The insurance system. And now the commercial banks are getting in
industry’s investment income from the stock market and on the financial technology - fintech - act, too, partly
the fixed income market in 2016 fell by 200 billion yuan due to the regulatory push for financial inclusion but
from 2015 due to increased volatility, CIRC’s Duan said. also because of their need to transform their business
Insurers’ investment income yield was at 5.66 percent strategies. The growth in financial inclusion in China has
in 2016, Duan added. That compared with an average been remarkable. According to a survey by the Boston
investment income yield of 7.56 percent in 2015. The Consulting Group, the average Chinese adult now has
insurance industry’s profit dropped by about 30 percent 5.36 financial accounts. And as more transactions within
year-on-year to “close to” 200 billion yuan due to a low the Chinese economy take place digitally, third-party
interest rate environment and capital market volatility, payment companies such as AliPay and TenPay have
he said (Reuters). expanded rapidly. These companies now boast more
than 475 million users, and have greatly increased
Financial Securities the penetration of basic financial services. Something
similar is happening in online wealth management. For
A crackdown on China’s “shadow banking” industry example, Ant Financial Group - which operates AliPay
is rattling share prices and bond markets, according to - established money market fund Yu’E Bao in 2013. It
Financial Times. Shadow banking is broadly defined as is now the world’s largest, with more than 300 million
financial activities such as lending that are conducted in users and total assets under management of over 800
unregulated conditions, and it’s a massive deal in China: billion yuan. Its investment threshold, meanwhile, is
Business expanded to about $8.64 trillion a year in only 0.01 yuan - that’s less than one U.S. cent. As for
China in 2016, according to the ratings agency Moody’s. lending, besides the two giants of Ant Financial and
But the practice exposes the country’s economy to a Tencent there are now thousands of online companies
huge amount of financial risk, and it has come under competing in this field - and that has led to lower costs
much more scrutiny from China’s newly appointed for borrowers. Online financing reached 1.16 trillion
banking regulator, Guo Shuqing, who has signaled his yuan by the end of 2016. That’s important because
intention curb off-sheet lending. Since his appointment the average number of credit cards is still only 0.29
in February 2017, he has introduced rules to discourage per person in China, compared with 3.4 per person in

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