State-backed UnionPay, the mainland’s biggest bank card provider, said on Saturday it had banned customers from using its services to buy investment-related insurance products in Hong Kong with immediate effect, the latest move by the authorities to try to stem an outflow of cash as the yuan continues to weaken.
Holders of UnionPay cards issued on the mainland could no longer buy any insurance product that included “investment-related contents” in Hong Kong, according to a statement issued by UnionPay.
Customers could, however, still buy pure insurance products covering accidents, deaths and illnesses, the statement said.
Mainland investors have been pouring into Hong Kong to buy insurance products to hedge against the declining yuan and skirt strict capital controls to move money offshore.
Purchases through UnionPay have not been included in the annual cap of US$50,000 in foreign currency that each person on the mainland is allowed to move out of the mainland.
Purchases of insurance products by mainland visitors in Hong Kong hit HK$30.1 billion in the first half of the year, up 116 per cent compared with the same period last year, according to recent statistics from the city’s insurance industry regulator.
The figure was almost equal to 2015’s total annual amount of HK$31.6 billion.
“It has been growing so quickly. It’s not purely because mainlanders only want insurance products in Hong Kong. It’s more about diversifying currency risks and moving money abroad, ” said Bernard Chan, the president of Hong Kong-based Asia Financial Holdings and Asia Insurance.
“The mainland authorities feel it is a problem and they want to curb capital outflows.”
Liu Dongliang, a Shenzhen-based economist at China Merchants Bank, agreed
“It is one of the measures in capital controls as capital outflow pressure is getting bigger this month as the yuan continued to weaken against the US dollar,” he said.
UnionPay’s ban follows earlier restrictions by mainland authorities to cap insurance purchases overseas using its cards to the equivalent of US$5,000.
The ban may have a negative impact on Hong Kong’s insurance sector in the short term, but will be of limited help in curbing the amount of cash flowing out of the mainland, according to analysts.
“In the short term, the Chinese authorities have made it more difficult for Hong Kong insurance companies to sell products to mainland investors on UnionPay POS [point of sale] terminals,” said Ronald Wan, chief executive at Hong Kong-based Partners Capital International.
“But people can often find another way if they really want to move money out,” he added. “So it remains to be seen how effective these restrictions are.”
An insurance sales agent in Hong Kong, who asked not to be named because of the sensitivity of the issue, said a lot of mainland investors might use other underground methods to transfer money out if the UnionPay channel was “blocked”.
I don’t think the ban can curb the zeal of mainlanders sending cash abroad. It may act like a goad to drive more people to buy insurance policies offshore,” she said.
“They [mainlanders] can always find a way out. Restriction policies often drive the panic in China, just like how crazy Chinese people have become in snapping up houses after authorities tightened home purchases.
“The more they restrict, the higher the property prices are,” she said. “I’m actually quite optimistic about the outlook for mainlanders buying insurance policies in Hong Kong.”
The yuan has faced a fresh round of deprecation pressure against the US dollar in recent weeks. Rising expectations of an interest rate rise by the US Federal Reserve in December have strengthened the dollar and put added pressure on the yuan. The yuan weakened 1.6 per cent against the greenback in October trading within China, while it continued to set new lows in trading overseas.
Capital outflows from the mainland have accelerated. China’s foreign exchange reserves fell for the third month in a row in September to US$3.17 trillion, the lowest level since June 2011.
Data released by the State Administration of Foreign Exchange also indicated that banks sold a net US$28.4 billion of foreign currency to clients last month, the highest since March.