This report focuses on the important role of insurance in China's rapidly growing economy. Working with China's Insurance Regulatory Commission, the Asian Development Bank developed this work in response to China's insurance problems, such as weak regulatory and supervisory frameworks and limited investment options for insurance companies. The report advocates the development of a strong, risk-based insurance industry and facilitation of the ongoing social security reform processes within China.
The Chinese insurance sector is experiencing rapid growth, posing particular challenges to effective supervision. The sector has been growing by over 20 percent a year and there are ambitious government targets for further development. Many individual, often newer, companies are growing at rates far in excess of the average. New entrants, products and distribution channels, combined with the liberalization of pricing, have increased competition. At the same time, slower economic growth and reduced investment returns are exposing many established life insurers to the risk of loss due to the rising value of their liabilities. Many non-life companies are moving into new lines of business as margins in established lines erode. While their customers continue to benefit from a dynamic market, there are risks to insurance companies' business models, performance and to solvency as well as risks of misconduct in the treatment of insurance customers. There are particular challenges for insurance supervisors to remain abreast of developing risks, while continuing to strengthen the regulatory and supervisory system for the longer term. The China Insurance Regulatory Commission (CIRC) has been undertaking far-reaching reforms and modernization since the 2011 FSAP. It has focused its work on improving corporate governance, enforcing sound market conduct and reshaping the solvency standards into a modern, risk-based approach. The China-Risk Oriented Solvency Standards (C-ROSS) draw on international practices and experience in the Chinese market to define solvency requirements that generally reflect risk as well as rewarding sound risk management. By linking the framework to an in-depth assessment of risk management, C-ROSS has also equipped CIRC with a strengthened overall supervisory framework for solvency risk. As a result, CIRC has felt confident to relax or remove less risk-based requirements such as new product (and reinsurance contract) approval as well as detailed limits on insurers' investments. In parallel with regulatory changes, it has been working to reform and develop the insurance market, liberalizing pricing controls and accommodating the development of new products, although restrictions remain on the access of foreign insurers, especially in life insurance.
With the rapid development of China’s insurance industry and the opening of the Chinese insurance market to the world, Chinese insurance law and regulation has become an increasingly relevant topic for insurance practitioners and academics. The Regulation of Insurance in China therefore provides a much needed analysis of the Chinese regulatory system. This is the first systematic text written in English on the regulation of insurance in China and provides a comprehensive and systematic analysis of rules of law and administrative regulations on China’s insurance industry and insurance market, covering four level of regulatory hierarchy − the statutory law, the regulations enacted by the central government (the State Council), the regulations developed by the insurance supervision and regulation authority of the State Council, and self-regulations by the insurance industry. This book is essential reading for insurance companies and legal practitioners looking to do business in China, as well as reference for lawyers practising insurance law. It is also a useful resource for students and academics studying Chinese law.
Insurance companies in China are closely supervised and generally subjected to appropriate regulation. The China Insurance Regulatory Commission (CIRC) employs a rules based framework and has achieved a high level of regulatory compliance from supervised companies. This assessment of the People's Republic of China's compliance with International Association of Insurance Supervisors (IAIS) Insurance Core Principles (ICP) was carried out as part of the 2010 Financial Sector Assessment Program (FSAP). The CIRC has principal responsibility over insurance regulation in China and conducts its duties through its headquarters in Beijing and 35 regional branches, the insurance bureaus. Insurance supervision is not limited to the CIRC, as it is affected by high level regulations issued by the state council.
A detailed assessment report on the observance of China’s compliance of Basel Core Principles for effective banking supervision is presented. Regulation and supervision of China’s banking system has made impressive progress in the past few years, led by an activist, forward-looking regulator, the China Banking Regulatory Commission, with a clear safety and soundness mandate that has been supported by banks and by the State. The macroeconomic environment is characterized by rapid growth, with concerns about overheating and asset price overvaluation.
This 2019 Article IV Consultation with People’s Republic of China highlights that after the slowdown in 2018, reflecting financial regulatory strengthening and softening external demand, growth stabilized in early 2019. Financial deleveraging and reduced interconnectedness between banks and non-banks have helped contain the build-up of financial risks, but vulnerabilities remain elevated and progress on rebalancing is mixed. While a moderate slowdown is expected in 2019, uncertainty around trade tensions remains high and risks are tilted to the downside. Successfully shifting from high-speed to high-quality growth in a highly uncertain environment requires stabilizing the economy amid rising trade tensions while continuing with deleveraging and strengthening rebalancing. It is important to improve external policies and frameworks by working constructively with trading partners to better address shortcomings and enable a trading system that can more readily adapt to economic changes in the international environment.
This paper discusses the findings of the Financial System Stability Assessment (FSAP) for China. Since the 2011 FSAP, China’s impressive economic growth has continued, and it is now undertaking a necessary but prolonged economic and financial transformation. However, tensions have also emerged in various areas of the Chinese financial system. The monetary and fiscal policies aimed at supporting employment and growth have been expansionary in recent years. Pressures to keep nonviable firms open are strong, particularly at the local government level, where these objectives, at times, conflict with financial stability. The demand for high-yield investment products coupled with strengthening oversight of the banking sector has also led to regulatory arbitrage and the growth of increasingly complex investment vehicles.
Despite its success to date, the People's Republic of China (PRC) faces some major challenges in finance sector development. Like all success stories, the PRC is finding it increasingly di cult to maintain momentum. The finance industry needs greater involvement from the private sector, including input in decision making. Achieving the desired outcomes will require a careful balance between the pace at which controls are removed and that at which the regulatory and legal infrastructure is strengthened. Long-term success will also require that economic growth be inclusive, with financial services available to all members of society.
This report discusses the IMF/World Bank Financial Sector Assessment Program (FSAP) exercise for China undertaken during June–December 2010. The assessment concluded that reforms in China have progressed well in moving toward a more commercially oriented financial system. Despite success and rapid growth, China’s financial sector is confronting several near-term risks, structural challenges, and policy-induced distortions. A properly composed and timely implemented set of reforms would help address these challenges. A framework to resolve weak financial institutions on a timely basis is also needed.
The main macro-financial risks relate to extensive linkages to Mainland China, stretched real estate valuations, and exposure to shifts in global market and domestic risk sentiment, compounded by escalating U.S.-China tensions. Stress tests show that the financial system is resilient to severe macro-financial shocks, but there are pockets of vulnerabilities in foreign bank branches, investment funds, households, and nonfinancial corporates. Hong Kong SAR’s financial sector is also exposed to physical and transition risks from climate change.
