The Hindu Business Line : Do all financial routes lead to Beijing?

CHONGYANG Festival was celebrated a few days ago in China as the day of the elderly. The day is also known as the Double Ninth Festival, because it falls on the ninth day of the ninth lunar month.

A worrying fact, however, for the country is that "the number of citizens above the age of 60 will increase from the current 147 million to 174 million in 2010, representing about one-eighth (12.57 per cent) of the total population at that time," as www.chinadaily.com.cn notes in a report dated October 11.

Be that as it may, China is a big market of 1.3 billion people for insurers, says Financial Services in China, from China Knowledge Press (www.chinaknowledge.com). The demand for insurance is growing due to an increasing proportion of the ageing population, and also because there is higher general awareness of the need for protection, one learns.

China's new social security system is complemented by commercial insurance services. Government agencies provide pension, medical and unemployment insurance; and insurance companies have a vast potential in commercial insurance such as "group and individual life insurance, health and accident insurance, and property and casualty insurance," the book informs.

A rising demand curve, notes the book, is because of accelerated urbanisation. The percentage of urban residents has almost doubled from 21 to 41 over the last two decades; and "from 1990 to 2003, the per capita disposable income of urban residents has increased from RMB 1510 to 8472."

Another indicator of the insurance potential is that China's share in the world insurance industry is only 1.6 per cent. Insurance density, measured as premium per capita, is only a hundredth of that of the US, 8 per cent of the world's average, and 20 per cent of Asia's.

That explains the 26 per cent growth rate of premiums in 2003. The book anticipates a 15-20 per cent growth rate. "Currently, insurance is the most open sector in China's financial industry," opines the publication.

How has been the performance of the foreign insurers? Here are a few statistics: In 2004, premiums written by them were RMB 9.8 billion, or 2.3 per cent of the total, but the growth rate was 46 per cent, `more than three times the national average'. Four cities — Shanghai, Beijing, Guangzhou and Shenzhen — account for 80 per cent of total premiums written by foreign insurers. And AIG seems to have almost 50 per cent market share of the total foreign insurers' pie.

On the legal requirements, the book informs how it is necessary to get the Legal Person Licence and also Licence to Operate. To conduct activities in foreign currencies, apply to the State Administration of Foreign Exchange (SAFE), instructs the book. Don't forget to study the Administrative Regulations for Insurance Companies, effective from June 15, 2004, and also to familiarise yourself with CIRC or China Insurance Regulatory Commission.

The book devotes major sections to banking and securities. On the positive side of China's banking sector are the strides it has taken in monetary policy, autonomy and diversification. Challenges remain in the form of "large non-performing assets, insufficient commercial orientation of state-owned banks, and lack of efficient indirect monetary instruments." PBOC or the People's Bank of China is the central bank and, from 2003, it has focussed on formulation and implementation of monetary policy, prevention and resolution of financial risks, and safeguarding of financial stability.

That year, the CBRC (China Banking Regulatory Commission) was formed, "to take over from PBOC the supervisory responsibility for banks, asset management companies, trust and investment companies and depository financial institutions", you'd learn from the book.

"Robust economic growth is a probable indication of a bullish stock market. China defines such a convention," says the book, and cites statistics. In 2004, GDP grew at 9.5 per cent, the highest in eight years; "ironically, at the end of December 2004, the Shanghai Composite Index fell to its six-year low." To explain, there's a special report titled `A strong economy, a bearish market'.

An ancient Chinese proverb reads, "All roads lead to Peking". Same way, perhaps, all financial roads are now leading, or at least branching off, to Beijing! Packed with facts and charts, the book is an essential companion if you are taking one of those many roads to make money in China.

Planning for macroeconomic management

TO INITIATE "a process of development which will raise living standards and open out to the people new opportunities for a richer and more varied life," is what the First Five Year Plan (1951-56) set as its objective. The Second Plan sought "to rebuild Rural India, to lay the foundations of industrial progress, and to secure to the greatest extent feasible opportunities for weaker and under-privileged sections of our people and the balanced development of all parts of the country."

The Eighth Five Year Plan that began in 1992 after a gap of two years had the then Prime Minister, P. V. Narasimha Rao, writing in the foreword: "The market can be expected to bring about an `equilibrium' between `demand' — backed by purchasing power — and `supply', but it will not be able to ensure a balance between `need' and `supply'." What is the solution? "Planning is necessary to overcome such limitations of the market mechanism. Planning is essential for macroeconomic management, for taking care of the poor and the downtrodden, who are mostly outside the market system and have little asset endowment."

Compiling the entire 15,000-plus documents of our Five Year Plans from the First to the Tenth (2002-2007), along with the June 2005 `Mid-term Appraisal', Academic Foundation (www.academicfoundation.com) has brought out a CD along with a handy book containing the Appraisal and Volume 1 of the Tenth Plan. Useful addition to your reference rack.

BooksOfAccount@TheHindu.co.in

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