War over Chinese insurance industry to grow after WTO

War over Chinese insurance industry to grow after WTO

SHANGHAI (AFP): China's insurance regulators will not give up
their fight to protect ailing domestic insurance firms from
foreign competition once the country joins the World Trade
Organization, industry sources said.

Insurance was one of the most hotly-contested issues for
European Union negotiators who sealed a landmark trade deal on
China's entry into the WTO Friday, marking the last major hurdle
in China's 14-year bid to join the global trading body.

The China Insurance Regulatory Commission, the country's
recently established industry watchdog, is anxious to slow
foreign encroachment on domestic insurers' turf and exerted huge
political pressure on Chinese negotiators, the industry sources
said.

"Negotiations were not a friendly discussion," said a foreign
insurance executive in Shanghai who declined to be named.

Many Chinese insurance firms are teetering on the brink of
insolvency because insurers are only allowed to invest premium
incomes in bank deposits, government bonds and a handful of
recently launched mutual funds -- all of which provide minimal
returns.

Since the CIRC was only established in November 1998,
regulators are also racing to keep pace with the rapid growth of
the industry.

Insurance premium incomes have surged by an average 36 percent
a year since 1980, growing to 139.3 billion yuan (US$16.78
billion) in 1999 from just 460 million yuan in 1980, according to
official figures.

Nevertheless, the EU team won some prized concessions,
including seven new and immediately effective licenses for life
and non-life insurance.

European insurance companies have long complained that
American companies have received an unfairly high number of
licenses with the lion's share going to US insurance giant
American International Group (AIG).

Prior to the agreement, there were 17 insurance operating
licenses in China, eight of which were granted to AIG
subsidiaries.

The China-EU agreement tips the balance back in the Europeans
favor but will anger CIRC officials who are anxious to slow the
growth of foreign competition in order to get legislation to
govern the industry in place.

"They are not jumping for joy about those seven new licenses,"
said an US insurance executive in Beijing.

It is still unclear in which cities the CIRC will grant new
licenses, and until a decision is made, foreign firms can not do
preparation work with provincial authorities or negotiate with
joint venture partners, sources said.

Insurance executives also noted that Chinese authorities are
likely to be slower to grant new licenses to other US and foreign
companies after the issue of the seven licenses granted to the
Europeans.

"I don't think there will be a rush of new companies after
WTO. You need a certain amount of assets and to have a
(representative) office here for two years before you can get a
license," said Hans Jorg Probst, chief representative of German
Insurance giant Allianz in Beijing.

Foreign insurers with grievances about not getting licenses
could take the issue to the WTO for arbitration.

However, WTO dispute resolution is a very lengthy process and
since it already takes an average of 17 months for a firm to
write its first policy after getting an operating license, many
firms may opt to wait for regulators to open the doors further
instead.