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Cablegate: Austr Stratford Discusses Enterprise Annuities

VZCZCXRO4606
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #3210/01 2330926
ZNR UUUUU ZZH
P 200926Z AUG 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 9396
INFO RUCPDOC/USDOC WASHDC
RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 003210

SIPDIS
SENSITIVE

FOR EAP/CM PETER SECOR/JOY YAMAMOTO
USDOC FOR ITA/MAC/KASOFF/MELCHER/KARNAK
USDOC FOR ITA/MAS/ESTRADA
USDOC FOR ITA/IA/SPOONER AND LORENTZEN
STATE PASS USTR
USTR FOR STRATFORD/WINELAND/MAIN
TREASURY FOR MANAGING DIRECTOR DAN WRIGHT

E.O. 12958: N/A
TAGS: ECON EFIN CH
SUBJECT: AUSTR STRATFORD DISCUSSES ENTERPRISE ANNUITIES
WITH CBRC

THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. NOT FOR
INTERNET DISTRIBUTION.

1. (SBU) Summary. On Friday July 18, Assistant USTR for
China Tim Stratford and USDOC DAS Ira Kasoff discussed
enterprise annuities with China Banking Regulatory
Commission (CBRC) Director-General Li Fuan. Li Fuan
outlined the current state of affairs regarding
enterprise annuities and agreed that further public and
government education about retirement annuities was
needed. Regarding draft regulations by the Chinese
Insurance Regulatory Commission (CIRC) that included
provisions that appear to limit investment by foreign
companies in Chinese insurance companies, Li noted that
these provisions were currently under discussion between
CBRC and CIRC. On credit cards, where China UnionPay
currently is the only domestic credit card organization
in China, Li noted that China had just published a new
anti-monopoly law and the government now "should have a
clear position" on UnionPay's monopoly status. End
Summary.

2. (SBU) China Banking Regulatory Commission (CBRC)
Director General (DG) Li Fuan outlined the current state
of affairs regarding enterprise annuities. To date, a
committee chaired by the Ministry of Human Resources and
Social Security (MOHRSS), on which Li represents the CBRC,
had given licenses to 39 banks to provide various
services. Li said CBRC believed (and hoped) eventually 3-
5 large banks would dominate the sector, but wanted the
market to sort this out.

3. (SBU) Unlike MOHRSS, CBRC supported a continuously
open application process for new entrants. He added that
licenses of three or four banks had recently been
withdrawn and CBRC is encouraging MOHRSS to provide these
licenses to new entrants without waiting for the next
formal open application period. MOHRSS and CBRC viewed
the situation differently: the former saw the market as
still small, so no need for more entrants, while CBRC
recognized the huge potential market and the need for
more companies. Finally, Li acknowledged that China at
this time offered no tax benefit for enterprise annuities
(either for companies or workers), and suggested that the
current strong budget position could enable it to do so.

4. (SBU) Li agreed that further public and government
education about retirement annuities was needed, and
hoped that more Chinese companies would face pressure
from their workers to copy their competitors' programs,
resulting in faster growth of the industry. He suggested
the USG continue to use the SED?s discussions on
rebalancing growth to encourage China's development of
pension systems, for which China's central and local
governments needed additional advice and assistance.
When DAS Kasoff suggested a tentative offer of a
technical assistance program on enterprise annuities, DG
Li responded that government officials and regulators
would definitely welcome it. Li cited Shanghai, where
the government has offered an annuity program to its
employees for more than ten years, as a useful model.

5. (SBU) Regarding draft regulations by the Chinese
Insurance Regulatory Commission (CIRC) that appear to
limit investment by foreign companies in Chinese
insurance companies, Li noted that Chinese banks were the
major contributor to insurance sales; for example, banks
sold about one-half of Chinese life insurance
policies. He argued that banks should be more involved
in the insurance sector, so they can collect more than
agents' fees, and supported formation of joint
ventures. Li said CBRC and CIRC were discussing CIRC's
proposed regulations that would prohibit a wholly-owned
foreign insurance company operating in China from forming
a J-V with a Chinese bank to offer insurance.

6. (SBU) On credit cards, where China UnionPay currently
is the only domestic credit card organization in China,
Li noted that China had just published a new anti-
monopoly law and the government now "should have a clear

BEIJING 00003210 002 OF 002


position" on UnionPay's monopoly status. While China
lacked sufficient legal and regulatory clarity for many
aspects of the credit card business, Li was doubtful that
the bureaucratic logjam (primarily between PBOC and CBRC)
over the supervision and regulation of credit cards would
be broken soon.

7. (SBU) For example, while CBRC supervises consumer
lending, PBOC continues to insist that it regulate credit
card lending given its jurisdiction over the payments
system. One reform under consideration was for the CBRC
to allow banks to form legally independent and licensed
credit card companies. The State Council had agreed to
CBRC's proposed use of the Tianjin pilot project as a
model, and CBRC was "working on the details." Li said
amendment of the current PBOC requirement for foreign
banks to move their credit and debit card data processing
operations to China in order to receive a license was
still under discussion; some agencies believed local
regulators should have responsibility and that processing
of "core data" should be in China.

RANDT

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