China UnionPay Co’s (中國銀聯) ban on mainland Chinese residents using bank cards to buy insurance products in Hong Kong probably will not reduce foreign exchange outflows by a significant amount, Goldman Sachs Group Inc said.
Whether or how the curbs may impact the pace of outflows through other channels is unclear at this point, and there is still uncertainty on what other financial products may be included into the banned categories, MK Tang (鄧敏強), senior China economist at Goldman Sachs in Hong Kong, wrote in a note yesterday.
“A much larger amount of stealth outflows in China is likely to have been facilitated by trading companies who maintain part of their net export proceeds offshore, possibly without the required reporting,” Tang wrote. “The insurance purchase ban is not related to these unregulated outflow channels.”
Regulators have been cracking down on mainlanders’ purchases of insurance in Hong Kong as buyers have been eager to move money abroad amid slower economic growth and a weakening yuan.
Bloomberg News reported that credit and debit cards to buy insurance products in Hong Kong is to be suspended other than for accident and medical coverage — later confirmed by UnionPay.
Chinese residents have been buying the insurance to skirt controls on how much capital they can move abroad, in some cases using multiple swiping of credit cards as a way of moving money overseas through the purchase of insurance policies.
“The rule tightening is likely partially due to concerns about outflow, and partially driven by the wide media coverage of surrounding stories of Chinese residents’ purchase of Hong Kong insurance products as a way to evade capital control,” Tang wrote.
The ban is unlikely to make a significant dent in outflows because the sums involved are “relatively modest” given that total premiums paid by mainland Chinese for insurance products including payment, but excluding UnionPay cards, was only about US$12 billion in the first half of this year versus total outflows of US$330 billion during the same period, Tang wrote.
Goldman’s outflow measure accelerated to almost US$80 billion in September, he said.
Curbs will affect more than 20 percent of AIA Group Ltd’s (友邦保險) annualized new premiums — a gauge of new policy sales— in Hong Kong, China International Capital Corp analysts estimated.
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