China has further tightened restrictions on purchases of Hong Kong insurance products by mainland investors, sources said, narrowing another loophole in the capital account seen as a potential gateway for capital flight.
The People's Bank of China (PBOC), the central bank, this week restricted the use of third-party payment providers by mainland Chinese to buy life insurance and other kinds of insurance policies in Hong Kong. Insurers, including Prudential and BOC Life, have already limited or suspended online payments using China's ubiquitous UnionPay bank cards, according to industry sources who received the communication from the central bank.
These purchases had become a way for Chinese individuals to skirt restrictions on capital outflows by disguising an investment as a purchase of a product, in this case an insurance product that served both as a store of wealth and as offshore collateral for other potential investments like property, analysts and those working in the insurance sector say.
China has seen accelerated capital outflows over the past year amid a slower economy, concerns over yuan depreciation, and volatile stock markets, prodding the government to curb overseas investment channels.
A month ago, China placed transaction limits on the use of UnionPay cards to buy Hong Kong insurance products - a popular method for Chinese individuals to move money out of country.
The combined moves curtail a potential line of business for the insurers and UnionPay, a state-owned monopoly that has been expanding overseas on the back of travelling Chinese consumers.
A UnionPay source, who spoke on condition of anonymity, said that the new policy had caused the company to temporarily shelve plans to deepen business with Hong Kong insurers.
UnionPay and the PBOC did not immediately respond to requests seeking comment.
"Union Pay card payments used to be the most popular channel among our clients," said a person with direct knowledge of the matter in Hong Kong. "But now, this channel has also been tightened significantly, which really makes it difficult to pay for big-size policies."
Chinese are now using less popular, online payment methods to buy insurance policies, this person said.
China's central bank has also prohibited the use of All-in-Pay, a major third-party electronic payment system, by Chinese individuals for any life insurance and investment-related products, people familiar with the new rules say.
Chinese regulators have ordered all insurers to cap online transactions involving UnionPay at 30,000 yuan ($4,609), starting March 14. While for clients that swipe UnionPay cards to pay premiums, Prudential capped the number of transactions per year to 10 and each transaction at $5,000. Prudential declined to comment.
BOC Life halted the All-in-Pay payment method altogether, according to a notice seen by Reuters and confirmed by the company.
"Buying overseas financial assets, including overseas insurance products, is a way to move money out of China. So it's natural for the government to adopt prudent management policies," said Tan Jialong, head of private equity at investment firm Zengdai Group.
The problem for Beijing is that there are plenty of other ways for Chinese investors to move money out of the country simply by using their UnionPay cards.
UnionPay cracked down on retail purchases in Macau. The enforcement successfully sealed off that channel, but without making a noticeable dent in net outflows.
"The top level has its policies, while those below have their own ways of getting around them," said a sales manager at Hang Tang Wealth Co Ltd, which arranges trips for clients to buy insurance products in Hong Kong.
As Chinese people have travelled more, they have grown famous for their purchases of foreign goods, including goods with stable values like insurance, single-malt scotch, and fine art, which can serve as stores of wealth.