China: The Limits to Liberalisation


Keen to be Number One

Graham Buck 22 July


Back in 1976 America celebrated its bicentennial, while in China the era of Mao Tse-Tung, founder of the People's Republic, ended with his death on 9 September that year and an ensuing power struggle. At the time, the prospect of China usurping the US within four decades as the leading world economic power would have seemed fanciful to many. However the rate of economic expansion has been so great that today a growth rate of 'only' 7.5% represents a significant cooling-off. In this week's gtnews focus on China's process of economic liberalisation, Dr Jianzhong Yao of Asia Capital provides an in-depth study on the opening up of the country's insurance and reinsurance markets, with the new solvency regime likely to free up as much as US$6.4bn in capital. Kevin Lester and Jeremy Wang of Validus Risk Management examine the strength of the Chinese renminbi (RMB) since the currency de-pegged from the US dollar in 2005 and ask whether the recent weakness is merely a blip. Elsewhere, Voith's Gerald Boehm describes how the German multinational undertook a two-year upgrade of the technology supporting its worldwide guarantee and trade finance business, while we return to the topic of the Bank Payment Obligation (BPO), which Olivier Spitz of UniCredit suggests could soon be rivalling traditional Letters of Credit in popularity.

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Hedging Renminbi Risk - End of the One-way Bet?

Kevin Lester, Validus Risk Management - Jeremy Wang, Validus Risk Management | 21 July

In mid-January this year, the Chinese renminbi (RMB) strengthened to a rate of 6.0406, its strongest level against the US dollar (USD) since China de-pegged its currency from the dollar in 2005. Since that time, USD/RMB had effectively been a one-way bet; the RMB was both an attractive vehicle for carry traders seeking to exploit the renminbi’s juicy yield - currently almost 5%. Additionally, it was a way for corporate treasurers to boost profits, often using structured derivatives (such as target redemption forwards) to capitalise on a view that the RMB would continue to strengthen.

China: On its Way towards a Risk-based Insurance Solvency Regime

Dr Jianzhong Yao, ACR Capital Holdings | 18 July

Since China reopened its insurance markets in the 1980s, the Asian giant has become one of the fastest growing insurance markets in the world, with the nominal annual premium growth rate of the property and casualty (P&C) sector in the past 10 years reaching about 22%. According to industry figures, China’s premium volume of US$126bn ranked it as the third largest P&C market worldwide in 2013, only marginally behind Germany’s US$133bn (the US remains a distant leader with a P&C premium volume of US$726bn). As at the end of 2013, China’s total insurance assets amounted to US$1,338bn, of which US$177bn stemmed from the P&C sector.

Bank Payment Obligation: A Tortoise in the Race?

Oliver Spitz, UniCredit | 17 July

Bank Payment Obligations (BPOs), are becoming a popular alternative to both letters of credit (LCs) and open accounts, with their use predicted to catch up with LCs by 2020. This article outlines the benefits and also explains why until now take-up has been fairly subdued.

FP&A Professionals Eager for New Technology

Ira Apfel, Association for Financial Professionals (AFP) | 22 July

The majority of financial planning and analysis (FP&A) professionals continue to use Excel to do their jobs, largely due to the familiarity of the software. But while many FP&A professionals acknowledge the many shortcomings of Excel, certain factors are holding them back from pursuing alternatives, according to the 2014 gtnews FP&A Technology Survey, underwritten by Workiva.