Daily Management Review

Foreign Firms Seeking Entry Into Pensions Business In China Worth $1.6 Trillion: Reuters


Foreign Firms Seeking Entry Into Pensions Business In China Worth $1.6 Trillion: Reuters
Following the opening up of some industry sectors to foreign companies by China earlier this year, there are a number of foreign companies such as Generali and Prudential Plc are holding entry level negotiations for entering the Chinese private pensions sector, reported Reuters quoting people with knowledge of the matter.
The sources also said that similar moves are also being contemplated by Hong Kong-based AIA Group and Manulife Financial, the report said.
The sources also reportedly said that last month, permission for setting up of the joint-venture firm involving a foreign company was granted by Beijing in the pensions insurance sector. Pilot projects in three provinces involving foreign companies were also being run in China, sources reportedly said. Those projects end later this year.
The potentially lucrative pension insurance market in China is dominated currently by eight established Chinese companies and the foreign companies would be the new competitors now. The pension insurance market is lucrative because of the fast aging population of China and where the number of people older than 60 would reach 250 million by 2020.
“The average longevity of people in China is increasing but the pension market remains under-penetrated,” Prudential Asia Chief Executive Nic Nicandrou told Reuters.
Sources also said that applications for setting up pension insurance business by a number of foreign firms would potentially be submitted by the second half of the current year.
The first joint-venture firm, involving a foreign company, to get approval from the regulators in China last month to start a business in the pension insurance sector was Heng An Standard Life.
According to a report by consultancy KPMG issued this year, there was a 20 per cent growth in the total pensions assets of China in 2017 touching 11 trillion yuan ($1.64 trillion) which is estimated to increase by four times by 2025.
Among major economies, the ratios of private-employee annuity pension assets to GDP is amongst the lowest for China at 1.5 per cent, said consultant Willis Towers Watson, which highlighted the potential for the sector. In comparison, the ratio is 120.5 per cent of GDP in the United States and over 130 per cent in Australia.
A 50-50 life-insurance venture with China’s CITIC Group is held by Prudential. The venture is “well poised” to enter the pension market in China, Nicandrou said but did not share any further details.
Progress in the pensions reform in China were being watched by Italy’s top insurer Generali, said the company’s Asia regional officer, Rob Leonardi. “If this trend continues, we can expect more foreign funded companies to express further interest in the coming months,” he said.
Chinese authorities have been called by global asset managers to offer tax benefits and other incentives to stimulate more investment in mutual funds for retirement.
Establishment of a joint-venture pension management company in China is being actively looked at by Manulife, which went into an understanding with Agricultural Bank of China in 2017 for possible joint ventures in China. .
Calvin Chiu, head of Asia retirement at Manulife Asset Management said that the company is looking to launch retirement solutions and products with the help of its life insurance and asset management joint ventures in China.
“The government has expressed willingness to open up the financial services sectors in the country, it’s just a matter of time and priority. They do recognize the value that foreign players can add in the pension space,” he said.