Out from the shadows, gradually...
The last two years have been tough for China’s life insurers. Regulations that were introduced in late 2010 and early 2011 have made it much harder to sell products through branches of banks according to the bancassurance model. The insurers’ products have also suffered as a result of stiff competition from various quarters. However, various new policies that have been announced by the China Insurance Regulatory Commission (CIRC) through late 2012 should make it easier for the life insurers to boost their premiums and to increase their investment assets under management (AUM).
Mounting concerns about inflation, together with a surge in issuance, crimped returns from China’s bond markets in March. Chengtou bonds, which had been outperformers in recent months, actually posted negative returns. All this is happening at a time that the (still substantial) flows of liquidity to bonds and bond funds continue to fall steadily. The bull market for Chinese bonds could well be coming to an end.
The China Banking Regulatory Commission (CBRC) announced on Wednesday its most significant attempt yet to rein in the riskier aspects of a ballooning wealth management product (WMP) market that had Rmb7.6tn under management at the end of 2012. We think the new measures – which target the most opaque forms of WMP – may significantly affect the business of those banks which have sold a high proportion of non-principal protected WMPs. We also think that the moves may divert funds away from the shadow financial system and into formal assets such as stocks and bonds.
January brought a number of official initiatives to increase competition within China’s financial services industry and to promote cross-border flows of capital. However, we doubt that the new Qualifed Domestic Individual Investor (QDII2) program will begin anytime soon.
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