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6 White Paper on the Business Environment in China
dictate the pace, scope and direction of their market penetra- Having surveyed the challenges and opportunities, foreign
tion… Meanwhile, the domestic banks continue to add to their banks have predominately decided that their future is bright in
service offerings as they steadily evolve towards more broadly China, according to an Ernst & Young survey of “38 overseas
based multi-service institutions… In contrast, the foreign banks lenders.” “Gradual and successive financial reforms” are fingered
are required to navigate a much narrower space… Reasons for as an expected source of “modest improvement” over the next
[foreign banks’] lack of growth in market share included an three years.48
un-level playing field, economic factors and a limited product
offering.”43 “Foreign lenders see a loosening of controls on interest rates
as the key to rebalancing China’s economy, even as the move
Nevertheless, “Against this challenging operating environ- may have a short-term effect on their profitability, the survey
ment, the participants continue to believe strongly in the future showed,” writes BloombergBusinessweek. “The Communist
opportunities of the Chinese financial services market.”43 Party, which pledged in November to give markets a “decisive”
role in the economy, in July eliminated a floor on lending rates.
PwC’s follow up study reported that the 42 interviewed It has yet to remove a ceiling on deposit rates.”48
foreign banks collectively intended to expand their workforce
in China by 53 percent by 2014, and that both further reform The insurance industry remains one of China’s least-pene-
and the future transition to a convertible Renminbi were causes trated by foreign firms, a fact which is by some (but not all)
for optimism in the Chinese financial services market’s future attributed to particularly long approval processes for activities
potential.42 including opening new branches and offering specialty prod-
ucts.49 By December 2009, 52 foreign insurers had established
As of 2011, the foreign banks collectively held 1.83 percent operations in China.47
of the Mainland banking market.42
Similar to the banking sector, foreign insurers are reportedly
Although “In 2010, combined profit for the foreign banks “struggling due to a joint-venture requirement on life insurance,
rose 24 percent, slower than China’s major local banks [and in] unequal treatment, and stricter regulations and solvency rules
2009, most foreign banks saw their profits slide,” a KPMG re- following the financial crisis,” issues which reportedly led to
port showed that the tables had turned only a year later: “com- “only three out of 24 foreign life insurers [making] a profit in
bined net profit at the China operations of 33 foreign banks 2008.”47
more than doubled in 2011 from a year earlier, outstripping the
pace of profit growth at local banks.”44 The discrepancy between insurance penetration and density
in China and in other industrialized markets is illustrative of
Nevertheless, foreign banks “are still niche players, account- the strong growth potential for the Chinese insurance market.
ing for less than 2 percent of the banking sector’s total assets It was reported in 2007 that China’s insurance penetration was
[…]in part because foreign banks have been allowed to serve 2.9 percent with a density of $70.50 In comparison, the average
individual Chinese savers only since 2007, an opening that penetration in industrialized markets is reported at 9.2 percent
launched a wave of investment by the banks in branches and with an average density of $3,642.51
personnel.”44
Reportedly, foreign firms’ market share in life and property
Furthermore, the strong profit growth may be difficult to insurance amounts to 5.652 and 1 percent53, respectively.
maintain since “banks [2011] benefited from China’s efforts to
tighten lending to curb inflation and surging property prices. A 2009 PriceWaterhouseCoopers study noted that no new in-
With loans harder to get, banks were able to charge more. This surance licenses had been granted since October 2008, although a
year, banks have posted declines in their net interest margins ‘relaxation’ in that situation was anticipated in late 2009.54
as authorities have cut benchmark interest rates, funding costs
have risen and demand for credit has cooled.”44 This ‘relaxation’ may have consisted of the February 2009
announcement by the Standing Committee of the NPC that
In early 2006 a personal credit rating system was first estab- amendments to the Insurance Law would become effective on
lished to be used as a standard assessment for consumer credit October 1, 2009. Among these amendments were reported-
risk. ly the abolishment of a restriction on reinsurance and adjust-
ments to the qualification requirements for major shareholders,
China’s consumers were reported to represent approximate- among others.55
ly $2.5 trillion worth of household deposits in 2008.40 The total
assets of the banking industry furthermore grew by more than In May 2010, the China Insurance Regulatory Commission
17 percent between 2003 and 2007 to reach $7.6 trillion.45 (CIRC) issued a new “Administration Provision on Reinsur-
Profits by the industry were reported as $41 billion in 2007.46 ance Business” (CIRC Decree [2010] No. 8), which became ef-
In 2009, total banking assets on the mainland were reported to fective in July of the same year. According to a KPMG brief on
reach 78 trillion yuan (roughly $11.9 trillion),41although the the new provision, “Decree 8 aims to reinforce the supervision
proportion of those held by overseas lenders reportedly shrank of the reinsurance business and promote the sustainable and
from 1.84 to 1.71 percent even as their total assets grew.47 healthy development of the industry as a whole.”56
232
dictate the pace, scope and direction of their market penetra- Having surveyed the challenges and opportunities, foreign
tion… Meanwhile, the domestic banks continue to add to their banks have predominately decided that their future is bright in
service offerings as they steadily evolve towards more broadly China, according to an Ernst & Young survey of “38 overseas
based multi-service institutions… In contrast, the foreign banks lenders.” “Gradual and successive financial reforms” are fingered
are required to navigate a much narrower space… Reasons for as an expected source of “modest improvement” over the next
[foreign banks’] lack of growth in market share included an three years.48
un-level playing field, economic factors and a limited product
offering.”43 “Foreign lenders see a loosening of controls on interest rates
as the key to rebalancing China’s economy, even as the move
Nevertheless, “Against this challenging operating environ- may have a short-term effect on their profitability, the survey
ment, the participants continue to believe strongly in the future showed,” writes BloombergBusinessweek. “The Communist
opportunities of the Chinese financial services market.”43 Party, which pledged in November to give markets a “decisive”
role in the economy, in July eliminated a floor on lending rates.
PwC’s follow up study reported that the 42 interviewed It has yet to remove a ceiling on deposit rates.”48
foreign banks collectively intended to expand their workforce
in China by 53 percent by 2014, and that both further reform The insurance industry remains one of China’s least-pene-
and the future transition to a convertible Renminbi were causes trated by foreign firms, a fact which is by some (but not all)
for optimism in the Chinese financial services market’s future attributed to particularly long approval processes for activities
potential.42 including opening new branches and offering specialty prod-
ucts.49 By December 2009, 52 foreign insurers had established
As of 2011, the foreign banks collectively held 1.83 percent operations in China.47
of the Mainland banking market.42
Similar to the banking sector, foreign insurers are reportedly
Although “In 2010, combined profit for the foreign banks “struggling due to a joint-venture requirement on life insurance,
rose 24 percent, slower than China’s major local banks [and in] unequal treatment, and stricter regulations and solvency rules
2009, most foreign banks saw their profits slide,” a KPMG re- following the financial crisis,” issues which reportedly led to
port showed that the tables had turned only a year later: “com- “only three out of 24 foreign life insurers [making] a profit in
bined net profit at the China operations of 33 foreign banks 2008.”47
more than doubled in 2011 from a year earlier, outstripping the
pace of profit growth at local banks.”44 The discrepancy between insurance penetration and density
in China and in other industrialized markets is illustrative of
Nevertheless, foreign banks “are still niche players, account- the strong growth potential for the Chinese insurance market.
ing for less than 2 percent of the banking sector’s total assets It was reported in 2007 that China’s insurance penetration was
[…]in part because foreign banks have been allowed to serve 2.9 percent with a density of $70.50 In comparison, the average
individual Chinese savers only since 2007, an opening that penetration in industrialized markets is reported at 9.2 percent
launched a wave of investment by the banks in branches and with an average density of $3,642.51
personnel.”44
Reportedly, foreign firms’ market share in life and property
Furthermore, the strong profit growth may be difficult to insurance amounts to 5.652 and 1 percent53, respectively.
maintain since “banks [2011] benefited from China’s efforts to
tighten lending to curb inflation and surging property prices. A 2009 PriceWaterhouseCoopers study noted that no new in-
With loans harder to get, banks were able to charge more. This surance licenses had been granted since October 2008, although a
year, banks have posted declines in their net interest margins ‘relaxation’ in that situation was anticipated in late 2009.54
as authorities have cut benchmark interest rates, funding costs
have risen and demand for credit has cooled.”44 This ‘relaxation’ may have consisted of the February 2009
announcement by the Standing Committee of the NPC that
In early 2006 a personal credit rating system was first estab- amendments to the Insurance Law would become effective on
lished to be used as a standard assessment for consumer credit October 1, 2009. Among these amendments were reported-
risk. ly the abolishment of a restriction on reinsurance and adjust-
ments to the qualification requirements for major shareholders,
China’s consumers were reported to represent approximate- among others.55
ly $2.5 trillion worth of household deposits in 2008.40 The total
assets of the banking industry furthermore grew by more than In May 2010, the China Insurance Regulatory Commission
17 percent between 2003 and 2007 to reach $7.6 trillion.45 (CIRC) issued a new “Administration Provision on Reinsur-
Profits by the industry were reported as $41 billion in 2007.46 ance Business” (CIRC Decree [2010] No. 8), which became ef-
In 2009, total banking assets on the mainland were reported to fective in July of the same year. According to a KPMG brief on
reach 78 trillion yuan (roughly $11.9 trillion),41although the the new provision, “Decree 8 aims to reinforce the supervision
proportion of those held by overseas lenders reportedly shrank of the reinsurance business and promote the sustainable and
from 1.84 to 1.71 percent even as their total assets grew.47 healthy development of the industry as a whole.”56
232
