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.