AUSTR STRATFORD DISCUSSES ENTERPRISE ANNUITIES

UNCLAS SECTION 01 OF 02 BEIJING 003210 SIPDIS SENSITIVE FOR EAP/CM PETER SECOR/JOY YAMAMOTO USDOC FOR ITA/MAC/KASOFF/MELCHER/KARNAK USDOC FOR ITA/MAS/ESTRADA USDOC FOR ITA/IA/SPOONER AND LORENTZEN STATE PASS USTR USTR FOR STRATFORD/WINELAND/MAIN TREASURY FOR MANAGING DIRECTOR DAN WRIGHT E.O. 12958: N/A TAGS: ECON EFIN CH SUBJECT: AUSTR STRATFORD DISCUSSES ENTERPRISE ANNUITIES WITH CBRC THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION. ¶1. (SBU) Summary. On Friday July 18, Assistant USTR for China Tim Stratford and USDOC DAS Ira Kasoff discussed enterprise annuities with China Banking Regulatory Commission (CBRC) Director-General Li Fuan. Li Fuan outlined the current state of affairs regarding enterprise annuities and agreed that further public and government education about retirement annuities was needed. Regarding draft regulations by the Chinese Insurance Regulatory Commission (CIRC) that included provisions that appear to limit investment by foreign companies in Chinese insurance companies, Li noted that these provisions were currently under discussion between CBRC and CIRC. On credit cards, where China UnionPay currently is the only domestic credit card organization in China, Li noted that China had just published a new anti-monopoly law and the government now "should have a clear position" on UnionPay's monopoly status. End Summary. ¶2. (SBU) China Banking Regulatory Commission (CBRC) Director General (DG) Li Fuan outlined the current state of affairs regarding enterprise annuities. To date, a committee chaired by the Ministry of Human Resources and Social Security (MOHRSS),on which Li represents the CBRC, had given licenses to 39 banks to provide various services. Li said CBRC believed (and hoped) eventually 3- 5 large banks would dominate the sector, but wanted the market to sort this out. ¶3. (SBU) Unlike MOHRSS, CBRC supported a continuously open application process for new entrants. He added that licenses of three or four banks had recently been withdrawn and CBRC is encouraging MOHRSS to provide these licenses to new entrants without waiting for the next formal open application period. MOHRSS and CBRC viewed the situation differently: the former saw the market as still small, so no need for more entrants, while CBRC recognized the huge potential market and the need for more companies. Finally, Li acknowledged that China at this time offered no tax benefit for enterprise annuities (either for companies or workers),and suggested that the current strong budget position could enable it to do so. ¶4. (SBU) Li agreed that further public and government education about retirement annuities was needed, and hoped that more Chinese companies would face pressure from their workers to copy their competitors' programs, resulting in faster growth of the industry. He suggested the USG continue to use the SED?s discussions on rebalancing growth to encourage China's development of pension systems, for which China's central and local governments needed additional advice and assistance. When DAS Kasoff suggested a tentative offer of a technical assistance program on enterprise annuities, DG Li responded that government officials and regulators would definitely welcome it. Li cited Shanghai, where the government has offered an annuity program to its employees for more than ten years, as a useful model. ¶5. (SBU) Regarding draft regulations by the Chinese Insurance Regulatory Commission (CIRC) that appear to limit investment by foreign companies in Chinese insurance companies, Li noted that Chinese banks were the major contributor to insurance sales; for example, banks sold about one-half of Chinese life insurance policies. He argued that banks should be more involved in the insurance sector, so they can collect more than agents' fees, and supported formation of joint ventures. Li said CBRC and CIRC were discussing CIRC's proposed regulations that would prohibit a wholly-owned foreign insurance company operating in China from forming a J-V with a Chinese bank to offer insurance. ¶6. (SBU) On credit cards, where China UnionPay currently is the only domestic credit card organization in China, Li noted that China had just published a new anti- monopoly law and the government now "should have a clear BEIJING 00003210 002 OF 002 position" on UnionPay's monopoly status. While China lacked sufficient legal and regulatory clarity for many aspects of the credit card business, Li was doubtful that the bureaucratic logjam (primarily between PBOC and CBRC) over the supervision and regulation of credit cards would be broken soon. ¶7. (SBU) For example, while CBRC supervises consumer lending, PBOC continues to insist that it regulate credit card lending given its jurisdiction over the payments system. One reform under consideration was for the CBRC to allow banks to form legally independent and licensed credit card companies. The State Council had agreed to CBRC's proposed use of the Tianjin pilot project as a model, and CBRC was "working on the details." Li said amendment of the current PBOC requirement for foreign banks to move their credit and debit card data processing operations to China in order to receive a license was still under discussion; some agencies believed local regulators should have responsibility and that processing of "core data" should be in China. RANDT