CIRC probe may delay offshore investments

At a time when Chinese institutional investors already have heavy government constraints on their cross-border activity already, a new development has raised further concerns on this front. 

The newly launched probe of the chairman of the domestic insurance regulator could delay large overseas investments by mainland insurers and potentially also offshore mandates, said a senior insurance executive on condition of anonymity.

Moreover, the investigation of Xiang Junbo signals that Chinese authorities will impose stricter supervision on senior officials, said Zhu Lin, a Shanghai-based analyst at consulting firm Red Pulse.

Large cross-border deals are likely to require final approval from the chairman of the China Insurance Regulatory Commission (CIRC), the unnamed executive told AsianInvestor. As a result, chairman Xiang Junbo’s exit could have an impact on such investments, he said.

The regulations refer only to "major equity investments" as needing the chairman's approval, without specifying a threshold.

However, offshore mandates would not be delayed for a long time, said Zhu at Red Pulse. “Insurers’ foreign investments aren’t dictated by one single official," she noted.

Smooth running

Meanwhile, the CIRC has an established mechanism for routine approvals and work, so these should run smoothly even in the chairman’s absence, added the unnamed executive.

And industry observers argued that other insurance industry reforms would not be affected by Xiang’s absence.

For example, the further easing of rules on foreign ownership of Chinese financial companies, including insurers, was reportedly discussed by Chinese president Xi Jinping and US president Donald Trump at their meeting this month.

These reforms will be decided by top government officials and be executed by the CIRC, so the absence of Xiang should not have an impact, said the insurance executive.

Chinese insurers will certainly be hoping this is the case, given that cross-border investing had already been hit by Beijing’s capital controls in recent months. 

China Life, the largest mainland insurer cited these constraints as one reason for its slower-than-expected increase in overseas exposure in the second half of 2016, to 2.43% from 2% of its total AUM.

Xiang’s investigation

China’s main anti-graft body announced on Sunday that Xiang was under investigation for alleged “severe disciplinary violations”. The Central Commission for Discipline Inspection's one-line statement on its website gave no further details. 

Xiang’s name has been removed from the list of leaders on the CIRC website.

Zhou Mubing, chairman of state-owned Agricultural Bank of China (ABC), is likely to replace Xiang as CIRC chairman, reported Tencent Finance, a new channel owned by internet firm Tencent, quoting three independent sources.

ABC held an urgent meeting on Monday morning to vote on the transfer of Zhou, the report said, adding that there is typically one month between such a vote and the official appointment.

Zhou only joined ABC in May last year, replacing Liu Shiyu, who had been named chairman at the China Securities Regulatory Commission. Zhou was vice chairman of China Banking Regulatory Commission before joining ABC.

Xiang’s investigation came as no surprise, merely confirming rumours of a probe that were already circulating before Chinese New Year (at the end of January), said the unnamed insurance executive. 

The chairman's legacy

Xiang had overseen a huge increase in the size of the insurance industry and major liberalisation, notably related to investment diversification of Chinese insurers, including overseas assets, noted the insurance executive.

Xiang had joined CIRC as chairman in 2011 after serving as chairman at ABC. China’s insurance assets more than doubled to Rmb15 trillion ($2 trillion) at the end of December last year from Rmb6 trillion at end-2011.

But malpractice also emerged in the insurance sector on Xiang’s watch. Recent cases include the aggressive equity speculation of Foresea Life and Evergrande Life, which resulted in a stock-buying crackdown, and the asset-and-liability mismatches in the universal life insurance businesses of some smaller players.

The regulator did not respond to emailed queries by press time.