Weakness in the Chinese property market is now threatening the insurance sector, suggesting that contagion may spread in the months ahead.

As such, China’s slow-motion financial crisis will likely run on for many more months, with commercial and geopolitical implications alike.

The ailing insurance sector

China Vanke Group (万科企业), a major property developer, in early March 2024 sought to assure investors that the company would repay USD630 million in dollar bonds due on 11 March 2024.  Its comments came in the wake of steep falls in value in its shares and bonds. 

The company’s comments alleviated some concerns in investor circles, aided in part by requests from the Chinese government to banks to assist in refinancing (suggesting it is a “designated survivor”).  However, these developments also outlined how the risks could spread, and drew attention to the exposure of major insurance businesses to China’s struggling property sector. 

Indeed, Taikang Life Insurance Group (泰康人寿保险集团), People’s Insurance Group of China (中国人民保险集团), and New China Life Insurance Group (新华保险集团) all concurrently confirmed that China Vanke Group had requested them for extensions to deadlines for payment on debt. 

No doubt other insurers have yet to disclose their exposure to Vanke – and no doubt other insurers have exposure to other developers. 

The risks of contagion

These developments highlighted, once again, how the property crisis has huge ramifications across the economy, ranging through the trust sector, exemplified by the insolvency of Zhongzhi Enterprise Group (中植企业) in January 2024 – and now into insurance.

Looking forward, it seems likely that the insurance sector may be the next domino to fall.  After all, the division of financial businesses in China into separate sectors has long ignored the reality that many such companies are conglomerates, with property, finance, trust, wealth management, and insurance arms within the same group.  

Evergrande Group (中国恒大集团), for instance, controlled Evergrande Life Assurance (恒大人寿), whose solvency rating fell steeply in the last year, before another life insurer, Hai Gang Life Insurance (海港人寿保险), a state-owned enterprise, took control in September 2023.  Zhongzhi Enterprise Group also included an insurance arm. 

In the go-go times, this structure made sense.  Insurance was a reliable, cash yielding business – and life insurance schemes have often served as high yielding wealth management products, or as a means to move money out of mainland China.

Now, though, this entire system is under serious pressure – and contagion is almost inevitable in the tangle.

The heavy hand of the state

State required restructuring aimed at resolving the problems may even spread contagion, or at least distress, if done clumsily (as seems likely).

Indeed, some reporting suggested in November 2023 that the Chinese authorities had asked Ping An Insurance Group (中國平安保險), one of China’s biggest private insurers, to buy into Country Garden Group.

Ping An later denied the claims, but the move would sit in line with the rough model set out previously on this page (albeit that Ping An is not strictly an SOE).  Investors, though, would question whether such moves will simply drag down what has long been a strong business. 

The implications

This latest news has two major implications for those watching China.  The first is that the property (and, really, financial) crisis is by no means over.  

Rather, this slow burn collapse (itself so different from the wildfire US subprime crisis in 2008), will trundle remorselessly on, trampling down victims in the months ahead.  Investors thus need to plan for a longer period of weak growth and malaise, unless and until the government acts to alleviate the problem. 

A second point is more conjectural.  Already growth in China has slipped to well below the official rate of about 5%. Several years of slow rates of growth may now deflate Chinese global influence.

After all, Beijing’s sway had hitherto related in large part to deep pockets, and a willingness to invest in (seemingly uncommercial) schemes through the Belt and Road Initiative.  The funds underpinning Chinese expansion may now fall short. 

Of course, the PRC will remain the second largest economy in the world, with a loud diplomatic voice, and a powerful military (it is no paper tiger).  Yet, unless Beijing addresses what is shaping up to be a slow-motion financial crisis, distraction is certain, and decline is possible. 

Developments in the insurance market may thus be a sign of things to come.