The New York Times:
Many commodity exporting nations are running into difficulties now with low prices for oil and other raw materials. How would you handle impaired loans by Chinese banks to developing countries? And you are already saying there are impaired loans. Thank you.
Huang Hong:
Thanks for your question. We will have Mr. Xiao Yuanqi, chief risk officer of the CBIRC, take the question.
Xiao Yuanqi:
Thanks for your question. Both in China and overseas, Chinese banks have various business dealings, including loans. Affected by the COVID-19 outbreak and other factors, the global market has seen some turbulence, including in the financial sectors and the world economy as a whole. This has inevitably had an impact on the banks' overseas loans. This is not an issue limited to Chinese banks, as foreign banks are facing it too.
On the one hand, our banks should act in line with the market principles and laws in order to continue their normal operations in other developing countries and developed countries. On the other hand, we must bolster the risk assessment. Risk management in various sectors will be improved based on customer segmentation for banks. More importantly, these banks should strictly abide by Chinese laws and regulations, as well as those laws and regulations enforced in host countries and regions. Meanwhile, Chinese banks must carry out normal commercial activities in foreign countries in strict accordance with international rules. Thanks.
CRI:
How will the pandemic affect China's property and life insurance sectors? What roles will they play in boosting economic development? Thanks.
Huang Hong:
Thanks for your questions. I will take this one. As the pandemic continues to spread across the world, the global economy is facing mounting downward pressure. In China, the outbreak has posed new challenges and difficulties to the resumption of work and production , as well as domestic economic and social development. Economic fallout from COVID-19 has also weighed heavily on China's insurance industry with increasing uncertainties and instabilities. The impacts can be summarized as follows:
First, the growth of the insurance industry was under pressure. The epidemic caused a negative impact on production and people's life, as well as mounting downward pressure on the economy. As a result, the operation of insurance services was restrained and the growth of the industry faced great pressure. In the first quarter of 2020, the original insurance premium income grew just 2.3% year on year to 1.67 trillion yuan. Growth in original premium income plunged 13.6 percentage points in the quarter. The growth of property and life insurances decreased by 7.7 and 15.22 percentage points, respectively, from the same period last year.
Second, the income of some companies and individuals was hampered by increased volatility in business operations, causing them to have a hard time repaying funds and leading to a higher default rate. As mentioned above, credit guarantee insurance compensation expenses jumped about 50% — a significant rise in the first quarter. Other types of insurances, such as accident, health, agriculture and business interruption insurances, as well as insurances protecting people from contract delay or cancellation, have also seen their compensation expenses go up significantly. Additionally, there are increasing instabilities in the investment returns of insurance companies, as their business was hampered by the turbulence in global capital markets.
Third, expenditures of insurance companies have also gone up amid the outbreak, further increasing amortized costs.
Despite being challenged by the pandemic, the insurance industry can also benefit from a number of upsides that have resulted from it. Looking at the environment from a macro-economic perspective, the pandemic's downsides to economic and social development will be gradually lessened with the implementation of policies and measures adopted to prop up the resumption of work and production, increases in domestic demand and consumption, accelerated poverty alleviation work and sustained financial stability. Stable and long-term positive economic performance trends have not changed. At the same time, demand for insurance guarantees will ride the tide to secure consecutive growth when social risk awareness and individual insurance awareness become notably increased by a deepened understanding of the industry. Considering business cycles, as of mid-April, 99% of enterprises across the country that are above a designated size have resumed work, major nation-level projects and infrastructure constructions have made stable progress, public hygiene and suppliers of emergency products have received increasing investments and new-tech infrastructures, such as 5G and data centers that have been constructed in an expedited fashion. The insurance industry has received greater space for development as a result of the demand derived from new consumption models. The insurance industry has guaranteed sufficient reserves for reimbursements and ensured stable fluidities. Here, I would like to stress, in particular, that despite the recent, narrowing year-on-year growth rates, our business restructuring has made great headway in increasing the net cash flow at a substantial rate, which proves my mentioning that the fluidities are stable enough to cope with the brunt of adversities. The industry has reformed its management styles, reinforced scientific and technological innovation, transformed business models, improved management efficiencies, ensured scientific, technological and digitalized advancements and strengthened competitiveness to better meet the personal and social demands for insurance coverage.
In the next phase, the CBIRC will direct and boost the insurance industry's role in helping fulfill the "six guarantees" that can be fleshed out as follows. First, the industry is supposed to increase its supply to prepare for the resumption of work and production. In its active response to the growing demand for social insurance, the industry will increase the supply of healthcare insurances, especially medical insurance. The innovative products, exemplified by the "Hainan Comprehensive Insurance on Resumption of Work and Production in Line with Epidemic Prevention and Control Efforts," are supposed to coordinate efforts among industrial chains involved in work resumption. Second, guarantee insurance should play its role in ensuring financing and credit enhancement in a bid to bolster micro- and small-sized businesses, emancipating them from financial stresses and reducing their fundraising costs by offering more credit loans. Third, support to agriculture production should be guaranteed. Agricultural insurance should be given a boost, standards should be improved, spectrums expanded and services enhanced. Insurance mechanism devised to insure the three major staple foods during disasters and policy-led insurance regulations for hog supplies should be improved. In addition, the industry will also support agricultural production and work to avoid big price fluctuations on non-staple foods. Fourth, investments and exports should be buttressed to proactively guarantee a stable economic performance. The industry should enhance its risk-control capability to guarantee the smooth operations of the country's major projects, supporting traditional and modern infrastructural constructions. It should also develop export credit insurance to safeguard export enterprises and promote provisions for products to countries and overseas subsidiaries of Chinese companies that are involved in the Belt and Road Initiative. Fifth, the insurance funds, because of its diverse utilities, should be given full play to invest more in the country's key industries and core areas, allowing them to financially support domestic economic development. Sixth, insurance agent team should be expanded and more jobs should be added.
