Business
July 19, 2005
Foreign insurance companies' arrival poses pressure upon domestic industry
As more and more foreign insurance companies enter the Chinese market, which has been gradually opening after China's accession to the World Trade Organization (WTO), the domestic insurance industry has felt rising pressure.
Meng Shaoyi, director of the International Department of the China Insurance Regulatory Commission (CIRC), the country's watchdog for the industry, made the remark in an interview with the Beijing-based Economic Daily, a leading economic newspaper in China.
Over 40 foreign insurance companies, including 27 of the 46 insurance companies among the top 500 companies, have set up agencies in China, according to the Economic Daily's report on Tuesday.
"China has implemented its commitments to the WTO by opening its domestic insurance market to overseas investment in stages, so the pressure brought by foreign companies was not big immediately after the country became a WTO member," Meng was quoted by the newspaper as saying.
At that time, only a small number of foreign insurance companies began offering services in the Chinese market, and with limited investment volume, he said.
The situation has changed a lot, however. In Shanghai, foreign-funded companies now account for 14 to 15 percent of the total market share, and in Guangzhou, the capital of southern Guangdong Province, the proportion is about 10 to 12 percent, said Meng.
At the end of 2004, according to China's WTO obligations, the country fully opened its insurance market to overseas investment. Now more than half of the country's insurance companies are foreign-invested, according to figures from the CIRC.
Statistics with the CIRC show that the growth rate of China's insurance industry is about 30 percent every year. It has become one of the fastest growing industries in China.
In 2004, the total income of premium in China reached 52.2 billion US dollars and the total assets of China's insurance industry reached 143.3 billion US dollars by the end of 2004, according to the CIRC.
Not all foreign-funded insurance companies in China are well-operated, Meng admitted, advising the Chinese side not to completely rely on the foreign side in joint venture management.
It is wrong for the Chinese cooperators to merely contribute funds and not to participate in corporate management, because foreign managers do not have a good understanding of the domestic market, he said, also worrying that malpractice may lead to the ruin of state interests since most Chinese-funded insurance companies are state-owned.
The CIRC encourages qualified Chinese-funded insurance companies to offer shares to foreign investors, but those companies should pay attention to the introduction of overseas talent and good managerial mechanisms, he said.
"In fact, foreign investors are very strict when choosing their Chinese investors, preferring large-scale domestic insurance companies with plentiful funds and good reputation," he said.
It is essential for Chinese-funded insurance companies to promote their own competitiveness rather than totally rely on foreign investment, he said.
Source: Xinhua
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