China: Clampdown on unwieldy insurance sector - AmpGFX

Chinese central government has increased efforts to control excesses in the insurance industry, a large amount of which may reflect corruption by government officials, according to the analysts at Amplifying Global FX Capital.

Key Quotes

“On Tuesday last week, the Chairman of one of China’s largest insurance companies, Anbang, was detained by authorities for undisclosed reasons.  The insurance sectors’ assets in China have surged in recent years.  They have expanded investment into a wide range of domestic and global asset funded by high-yielding wealth management products (WMP).  The apparent arrest suggests that the central government has increased efforts to control excesses in the industry, a large amount of which may reflect corruption by government officials to enrich themselves without regard to the broader financial risks on the economy.”

“It is widely presumed that China’s regulators will be careful to ensure financial stability ahead of the 19^th National Congress of the Communist Party in October.  However, it is evident that authorities are working more towards improving efficacy and stability in the financial sector this year.  This threatens to tighten financial conditions in China and expose weakness in the system.  Anbang and other insurance companies may find it more difficult to sell WMPS, potentially exposing weakness in their balance sheets (over-leverage and under-performing illiquid assets).”

“The Anbang Chairman Wu’s arrest adds to financial system risk in China and can act to weaken confidence in Chinese financial markets and spill over to weakness in other Asian markets; including the AUD that continues to perform as a proxy for financial risk in China.”