Pru and AIA pain crystallise banks' China risk
BREAKINGVIEWS-Pru and AIA pain crystallise banks' China risk The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Refiles to add dropped word in last paragraph.
By Ka Sing Chan
HONG KONG, Aug 6 (Reuters Breakingviews) - Insurers may be the latest target of China's push to tighten oversight of cross-border wealth. Shares in AIA 1299.HK and Prudential 2378.HK took a pounding after Chinese media outlet Caixin reported on Wednesday that Beijing may start taxing Hong Kong policies. But it's putting banks in an increasingly awkward position, too, despite recent reassurances from some high-profile executives.
The news that President Xi Jinping's government may impose a 20% tax on returns from offshore insurance policies sent AIA shares down more than 8% on Thursday, following Prudential's PRU.L dive in excess of 6%. The move would strike at one of Hong Kong's fastest-growing financial businesses. The city generated around 40% of new-business profit last year for both companies, with Prudential identifying mainland Chinese demand a “structural growth engine".
It would also hit HSBC HSBA.L, which topped the market by selling HK$24.6 billion of single-premium policies in the first quarter through just 1,560 contracts. That implies an average ticket size of roughly $2 million apiece. But wealthy clients are not only buying insurance. They need financial services ranging from premium financing to wealth management. This broader ecosystem, enabled by banks, helped Hong Kong overtake Switzerland as the world's largest cross-border wealth hub in 2025, with $2.9 trillion of offshore assets, according to Boston Consulting Group. Hong Kong contributed 26% of StanChart's STAN.L income in the first half. The city is HSBC's biggest earnings pool, and its broader wealth franchise attracted $64 billion of net new money in the same period, with 89% booked in Asia.
CEO Georges Elhedery said on the bank's earnings call on Tuesday that customer behaviour had not changed following China's earlier moves this year to curb cross-border money flows; in fact, the number of new accounts it opened last quarter actually increased. That echoes comments last week from Standard Chartered boss Bill Winters and executives.
Perhaps there would be little impact from the insurance change, too. After all, taxing offshore insurance is better than outlawing it, as some feared might happen. Levying returns, not principal, is far less painful, too. And the attractions for many mainland clients of purchasing policies in Hong Kong – currency diversification and succession planning – remain intact.
Still, Beijing's direction of travel is clear. It has moved from brokerages to offshore trusts to insurance to tighten its grip on cross-border capital flows to ensure they can be monitored, taxed and controlled. The current measures may yet weigh on bank earnings, and there's every chance the government rolls out more, such as tougher disclosure requirements for cross-border transactions. The wider the crackdown gets, the less convincing bank CEOs' reassurances will sound.
CONTEXT NEWS
Chinese mainland tax authorities have started levying personal income tax on the returns of offshore insurance policies, and early enforcement cases in Beijing and Hangzhou show authorities applying a 20% tax rate to returns from Hong Kong policies, Caixin magazine reported on August 5, citing tax lawyers and insurance insiders.
(Editing by Antony Currie; Production by Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))