With top Communist Party officials gathering in Beijing to set key government posts, the insurance regulator is looking like the weakest link.
China is considering a merger of its banking and insurance watchdogs to streamline the fragmented regulatory system, as Bloomberg News reported in late January. A combination could be announced soon after the National People's Congress, which starts next week. An alternative plan is to create a super-regulator, also including the People's Bank of China and the stock-market oversight body.
"Merger" can be a polite term for an acquisition, and that may be the outcome here: The China Insurance Regulatory Commission, headless since its boss was investigated for corruption in April, stands on the wrong side of the nation's top economic priority.
Beijing can now accuse the CIRC of lax regulation, even of fostering systemic risk in the fragile banking industry. Exhibit A is Anbang Insurance Group Co., which aggressively bought bank shares in public markets, then used its sway over those institutions to distribute even more savings products. In its prime, Anbang was China's third-largest insurer, selling as much as 87% of its offerings through banks and exposing them to credit risk. State-owned China Life Insurance Co., by contrast, relied on the traditional agency model.
Now Anbang is a mess. It's been seized by the state, and Chairman Wu Xiaohui, who married one of Deng Xiaoping's granddaughters, is in jail. Another of Anbang's original stakeholders, Chen Xiaolu — son of Marshal Chen Yi, a key figure in the birth of the People's Republic — died of a heart attack Wednesday night. Assets ranging from New York's Waldorf Astoria hotel to stakes in banks such as China Minsheng Banking Corp. may be for sale.
Even if President Xi Jinping forgives the gaps in CIRC oversight, the agency doesn't have the balance sheet to unwind Anbang. Insurers are required to contribute to the China Insurance Security Fund, which provides emergency liquidity in the event of bankruptcy. As of the end of July, the latest data available, the fund had a little more than 100 billion yuan ($15.8 billion), a fraction of the policies Anbang has written.
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