China May Be Losing Its Cat-and-Mouse Game With Hong Kong Insurance Buyers

  • Residents keep finding new channels to get money out of China
  • People will get around curbs ‘no matter what,’ analyst says

China's Insurance Cat-and-Mouse

It’s a game of cat-and-mouse that has gone on for most of this year, with Beijing showing no signs of winning yet. Each time China tightens up on money flowing out of the country for purchases of Hong Kong insurance, new routes seem to emerge.

In the latest clampdown, which started on Saturday, MasterCard Inc. and Visa Inc. added restrictions on purchasing all but the cheapest insurance policies using credit cards issued in China, according to people with knowledge of the matter. Chinese have been spending billions of Hong Kong dollars on insurance products that are linked to investments, as a way of channeling money out of China.

Chinese residents will “actively seek ways to get around the curbs no matter what,” said Bloomberg Intelligence analyst Steven Lam. Mainland purchases of Hong Kong insurance may rise to fresh records after reaching a high of HK$18.9 billion ($2.4 billion) in the third quarter, he said.

Tenacious mainland buyers have bypassed restrictions by channeling money through online payment services or by using Hong Kong money changers, who allow money to be received in Hong Kong based on domestic transfers to accounts within China. They’ve also swiped their credit or debit cards again and again -- in one case, as many as 800 times -- so that each transaction remained below the limit. The latest Visa and MasterCard rules restrict multiple swiping.

Weakness in the yuan is encouraging Chinese residents to put their money into products denominated in either Hong Kong or U.S. dollars. That’s adding to the headaches for Chinese officials concerned that capital flight could further contribute to yuan depreciation. Outflows are estimated to have totaled more than $1.5 trillion since the beginning of 2015.

Here’s how the game unfolded this year, based on information obtained by Bloomberg, as the government worked with credit and debit card companies to control the amount of money seeping out:

February

Purchases of insurance products using China UnionPay Co. debit and credit cards were capped at $5,000 per transaction. Shares of insurer AIA Group Ltd. slumped as much as 9.4 percent on the first trading day after the news, while Prudential Plc declined as much as 7.5 percent.

March

Mainland buyers were banned from using electronic third-party payment services for life insurance and investment-related products. 

Insurance purchases by mainland residents rose to a record in the first quarter, showing the limited effect of restrictions.

October

A UnionPay ban on using cards for purchases of life insurance and investment-related products was imposed after third-quarter insurance sales rose to a record. AIA shares plunged as much as 7.2 percent on the first trading day after the news.

December

In the latest restriction, mainland residents’ purchases using MasterCard and Visa credit cards issued in China were capped at $5,000 per Hong Kong insurance product. Fourth-quarter data on purchases is due to be released in March.

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