The Chinese crackdown on the flow of funds into insurance products in Hong Kong has been extended to global credit-card firms Visa Inc. and MasterCard Inc.
Domestic banks that issue the two providers’ cards will now be required to impose a $5,000 cap on insurance purchases made overseas using the cards, the State Administration of Foreign Exchange said in a statement on Friday. China UnionPay Co. bankcard holders are already subject to the same limit, and the regulator will “closely monitor” cardholders and insurers in cases where cards have been swiped multiple times, it said.
News that authorities will enforce the UnionPay curb more strictly triggered sharp declines earlier this week in shares of insurers with Hong Kong operations. Prudential Plc tumbled the most since March 2010 on Tuesday, while AIA Group Ltd. had its biggest drop since August.
The restriction complies with the nation’s capital-account curbs, while allowing Chinese people to fulfill a “reasonable demand” for insurance policies of a low amount, SAFE said. There is no change to rules issued in 2010 that place insurers in the “limited” merchants category, which is subject to the purchase cap, according to the regulator.
The move comes as China steps up administrative measures to slow capital outflows that Bloomberg Intelligence estimates reached $1 trillion last year. The tightening marked a reversal after years of easing that spurred global use of the yuan, a trend that turned on China when speculative bets against the currency offshore jumped.
Using UnionPay credit and debits cards enabled hundreds of thousands of Chinese to get around the nation’s controls that officially limit citizens from converting no more than $50,000 per year and sending it abroad. By swiping the cards at insurers in Hong Kong, mainland residents bought policies denominated in Hong Kong dollars and U.S. dollars -- averaging $50,000 but reaching as much as $1 million or more -- with the equivalent amount of yuan deducted from their bank accounts back home.
The money could then be cashed out and sent anywhere in the world as a clean source of funds from an insurance policy. Such policies, in addition to providing better health care, beneficiary payments and returns than those on the mainland, are also popular because they’re shielded from seizure in the event of bankruptcy in China or criminal proceedings, which have been intensifying under President Xi Jinping’s anti-corruption campaign.
Policies sold to mainlanders surged to a record HK$24.4 billion ($3.1 billion) in 2014, a 64 percent increase from the year before, and a 146 percent jump since 2012. In the first nine months of last year, 22 percent of Hong Kong’s new premiums were collected from mainland Chinese, an almost six-fold increase from a decade ago, according to the office of the Commissioner of Insurance.