Now, it turns out that the insurance industry is also not too happy about the obstacles being placed by China in the way of those who want to provide property and casualty insurance there. Despite the plethora of China trade cases already out there, I believe that financial services may yet become another area of contestation between the US and China. From the Financial Times:
When China was negotiating to join the World Trade Organisation in 2001, a crucial sticking point was whether it would open the country's insurance sector to foreign companies.
Beijing agreed to allow foreign property and casualty insurers to operate wholly owned domestic units. Foreign life insurers would be allowed to hold up to 49 per cent of Chinese joint ventures by the end of 2004.
Many predicted that the major international insurers, with decades of experience and myriad sophisticated products, would rapidlycapture market share from the lumbering state-owned underwriters.
But three years after the market's opening, the fearsome foreigners have gained little ground even though large international insurers have dedicated enormous energy and resources to this tantalising market.
In the first half of the year, foreign-owned P&C insurers' market share was just 1.15 per cent, down from1.24 per cent in the same period a year earlier and even from the 1.17 per cent share notched up in 2005.
Foreign life assurers fared slightly better. Their market share reached 5.79 per cent in the first half, up from4.82 per cent in the same period of 2006. "This could reflect the fact that life insurance is more attractive to insurance companies than property and casualty, so the foreigners are putting less resources into that sector," says Dorris Chen, BNP Paribas analyst.
Foreign life assurers, however, captured 12.77 per cent of the market in the first half of 2005. That was thanks to a single Rmb20bn ($2.6bn) policy sold by Generali China Life Insurance, a joint venture between Italy'sAssicurazioni Generali and the China National Petroleum Corp.
That policy - an annuity, retirement and pension that covered CNPC's 390,000 employees - made up the bulk of the Rmb32.4bn in total premium income earned by foreign insurers in China in 2005. No such mega-policies have been issued by foreign insurers since.
The only foreign insurer to make a consistent strong showing is American International Group. Its wholly owned American International Assurance unit got its business licence back in 1992 through practised lobbying and captured 1.6 per cent of the overall life assurance market on its own in the first half of this year.
Though foreign groups are not gaining ground, China's insurance market is growing at an annual rate of about20 per cent and will probably continue its rapid expansion thanks to the dismantling of the country's social infrastructure and the lack of a replacement safety net.
Foreign insurers put their slow progress down in part to continuing regulatorybarriers. Although the national market was formally opened, insurers have found that they must apply separately in every local market in which they want to operate. This process is time-consuming, opaque and fraught with red tape.
No international insurer wants to be the one to accuse the government of not meeting its WTO commitments although many complain in private that Beijing has not acted in the spirit of the WTO's mantra of equal treatment for all market participants.
In the country's biggest cities, where international players have had more success at getting approval for branches, analysts say the they have carved out a relatively significant market share, though figures arenot available.
Still the foreigners have been constrained by a limited supply of agents and other industry professionals. Many prefer to work for domestic companies because of perceived better career opportunities. Consumers have also shown limited enthusiasm for foreign groups' policies, which, though aggressively priced, are often more expensive than those issued by local companies.
Global insurers, such as HSBC and Axa Winterthur, that have chosen to invest directly in existing Chinese insurers have been more successful than those striking out on their own or through newly formed joint ventures. Like their counterparts in the banking sector, they have found it more profitable to tie their fortunes to state-owned partners than to fight them.
Draft industry regulations released last week restated the limit on foreign ownership in local insurers as20 per cent for each individual investor and 25 per cent for all foreign shareholders combined, the same limits that apply in the banking sector.
Investors can still exceed those limits, but in practice are likely to continue to find expansion difficult because they will not be considered local.
The regulations, most of which are aimed at excluding short-term foreign investors, will also introduce a $2bn minimum asset requirement and make offshore investors hold their stakes for at least three years. Investors will also have to have top ratings from an international credit rating agency, a barrier that may screen out some institutional investors.
On the other hand, the draft regulations would allow banks to invest in domestic insurance companies, a long-expected move that fits with Beijing'splan to foster home-grown full-service financial institutions.
But companies such as China Life, which took in Rmb121bn, or 47 per cent, of total life assurance premiums in the first half of this year, are not going to besatisfied with domination of the domestic market. They are already investing large sums in offshore securitiesmarkets.
With Beijing's wholehearted support, these behemoths may turn the tables on the foreign insurers through takeovers that will give them access to foreign markets as well as inter-national expertise. International groups may find that being acquired by a Chinese insurer is the best way to improve their chances in the murky Chinese market.
