The government may impose restriction on the use of UnionPay cards to pay offshore insurance products, in a bid to curb capital outflows. (Photo : REUTERS)
Chinese authorities are contemplating on imposing restrictions on the use of mainland-issued UnionPay cards to pay premiums on Hong Kong-based insurance policies, Reuters reported.
Following that, UnionPay, the country's bank card organization, issued a statement on Wednesday, Feb. 3, that some insurers may have violated payment rules when selling insurance products and urged them to correct the procedures.
The report said that the plan to impose limits on the use of UnionPay cards aims to curb capital discharges.
According to the report, insurance products in Hong Kong could allow buyers to get redemptions in U.S. dollars or Hong Kong dollars, which are preferred by investors in the face of further weakening of the yuan this year.
Citing sources with direct knowledge of the situation, the report added that beginning Thursday, Feb. 4, each transaction will be curbed at the equivalent of $5,000.
In an email response to the Global Times on Wednesday, UnionPay International said that insurance policies are already in a restricted category that is subject to a $5,000 payment cap per transaction, taking note that some insurers may have violated the rule and it will ask for corrections.
Data from the Hong Kong Office of the Commissioner of Insurance in Nov. 2015 showed that in respect of policies issued to mainland visitors in the first three quarters of 2015, new office premiums amounted to HK$21.1 billion ($2.7 billion), which represent 21.7 percent of the total new office premiums for individual business in the first three quarters of 2015.
A research note sent by Japanese financial company Nomura to the Global Times said that buying offshore insurance policies is regarded as "an effective way" for mainlanders to transfer their yuan savings into U.S. dollar or Hong Kong dollar assets.
Nomura added that the growth of U.S. insurer AIA Group, "one of the largest beneficiaries of mainlanders buying offshore insurance in Hong Kong," would be affected as shares of AIA on the Hong Kong bourse fell 4.88 percent on Wednesday following the news.
Liu Xuezhi, an analyst at the Bank of Communications, told the newspaper that China may still face capital outflow pressures in 2016, considering that the yuan exchange rate may weaken further and the U.S. may further increase interest rates.
Liu, however, noted that China can deal with potential risks, as its foreign exchange reserves are still the largest in the world, despite having declined to $3.33 trillion as of the end of 2015.
