HONG KONG - China is cracking down on a popular method of moving money out of the country, putting a limit on purchases of insurance products in Hong Kong using the country's ubiquitous UnionPay credit and debit cards, sources told Reuters.
A slowing economy, roller-coaster stock markets and a slide in the yuan fuelled record capital outflows of US$676 billion (S$964 billion) from China in 2015, creating a boom in demand for outbound investment products but prompting regulators to crackdown on loopholes.
Wealthy Chinese have been piling into insurance and investment products offered by Hong Kong-based insurers, agents and private bankers say.
Under restrictions detailed late on Tuesday, payments of insurance premiums in Hong Kong by UnionPay cards issued in China will be limited to US$5,000 per transaction from Feb 4, said two people with direct knowledge of the situation. They asked not to be identified due to the sensitivity of the issue.
The shares of insurance companies listed in Hong Kong fell after the news.
UnionPay said the company had always conducted its business in accordance with regulatory requirements. China's State Administration of Foreign Exchange did not immediately respond to requests for comment.
The sources said no daily limit was set for the number of total UnionPay transactions. Other payment methods, such as online payments, are not affected, they said. "The new policy said the limit is set for each transaction, but you can still pay many times a day to complete your payment for premiums of big amounts," one source said.
Agents have been aggressively marketing life insurance products that can be paid for in yuan and used as collateral for offshore foreign currency loans, private bankers and insurance agents say.
An agent for Manulife Financial Corp in Hong Kong sent social media messages to his clients in recent weeks, advertising the company's new "All-in-Pay" premium payment method, which allows users to make transactions online or through a mobile phone application.
"If you know any Chinese who wants to move money to Hong Kong, or change into US dollars, we can now help with our All-in-Pay platform to transfer large amount of money, and it's legal," the message mailout from the agent reads.
China limits the amount of cash individuals can take out of China to US$50,000 a year. Private bankers and insurance agents though said that Chinese high-net worth individuals have used Hong Kong insurance policies as a way raise cash offshore.
They buy life insurance policies and use them as collateral to borrow up to 80 per cent of the premium in overseas currency offshore through partner banks or from the insurer itself. That money can then be used to buy safe-haven assets in markets such as the United States, Europe or Australia.
Lawyers say life insurance policies taken out in Hong Kong can in principle be used as security for loans, subject to certain checks and restrictions.
WEAK YUAN FUELS SURGE
"Client interest is tremendous; it's a very easy way to bring money out," a Manulife agent told Reuters. He declined to be identified because of the sensitivity of the issue.
He said a client paid a 200 million yuan (S$43.3 million) premium last month and bought two more policies of the same amount from other insurance companies, converting 600 million yuan into US dollars within a couple of weeks.
In the first three quarters of 2015, Chinese mainland buyers purchased HK$21.1 billion (S$3.9 billion) in new insurance policies from the territory, representing a quarter of the total, the latest available figures from Hong Kong's Office of the Commissioner of Insurance show. That compares with HK$6.3 billion for all of 2011, which was about 9 per cent of the total.
Manulife ensures it complies with local anti-money laundering rules and other Hong Kong regulations, a spokesman said. "We don't communicate directly with them (Chinese insurance regulator), they don't really have jurisdiction in Hong Kong," Manulife's Hong Kong Head of Individual Financial Products Paul Smith said.
Prudential Hong Kong Ltd and AIA Group offer similar insurance products, their websites show. Prudential was not available to comment and AIA declined to comment.