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A new year is just around the corner, and pressure on the yuan means Beijing can look forward to a host of fresh outflows into Hong Kong insurance, curbs or no.
The annual $50,000 cap on foreign-exchange conversions resets on Jan. 1, and it’s a safe bet sales of dollar-denominated premiums in the city will spike.
Before October’s ban on using China UnionPay Co. credit and debit cards to buy insurance products in Hong Kong, new-premium sales to mainlanders were surging. A $5,000 transaction limit imposed in February and another ban in March on using electronic third-party payment services didn’t make much of a dent, with first-quarter purchases rising to a record. Takings continued to climb, reaching a fresh high of HK$18.9 billion ($2.4 billion) in the three months to Sept. 30.
An outright ban on UnionPay cards — the source of around 70 percent of Hong Kong policy payments by mainland Chinese — for anything beyond accident and critical illness cover was certainly a setback, considering those outlays weren’t bound by the $50,000 foreign-conversion ceiling and people were swiping cards multiple times to get around the earlier transaction limits.
Last week, the alternative of using MasterCard Inc. and Visa Inc. credit cards issued in China was dealt a blow after regulators limited them too to a $5,000-per-product cap. Little wonder shares in AIA Group Ltd., which gets around 16 percent of revenue from Hong Kong, have been hit, down 8 percent this month.
Hong Kong insurance companies shouldn’t stress too much. Few dollar investments are as easy, even with curbs, as buying insurance policies. Purchasing real estate in Hong Kong is complicated, not to mention a lot more expensive for foreigners these days.
There are other ways to game the system. You could use those Visa or MasterCards to buy several products from various insurers, ask family or friends to cart out $50,000 each (a practice known as smurfing) or engage an underground bank back home. There are also thousands of mainland residents with Hong Kong bank accounts that have linked credit cards who can buy policies anytime.
Curbing payment methods are a start when it comes to stemming capital outflows but it doesn’t deal with the core worry many Chinese have about their savings being eroded as the yuan depreciates. Buying insurance in Hong Kong is a tempting solution, and in China, where there’s a will, there’s a way.
— Bloomberg
Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.