Call it what you want, but this is China’s version of financial contagion. Just plugging holes will no longer cut it. How many firms can regulators try to salvage? How much capital will be injected? Can they find willing shareholders and white knights?
The answers to such questions won’t come without pain. According to CLSA, 11 insurers with about 15% of the market and 2.4 trillion yuan in total assets would be “walking a tightrope” with regulators. On average, if their asset value was 2% to 5% less than what they showed in 2019, their surplus capital—the capital over the minimum regulatory red line—would have been wiped out. If Beijing ever needs to rescue them all, the costs would be enormous. If not, the insurers would have no choice but to dump assets, which could threaten the broader market.
So far, Beijing hasn’t successfully unwound troublesome financial empires. In the two years since the overextended buyer of New York’s Waldorf Astoria, Anbang Insurance Group Co., was seized, attempts to dispose of its assets and find strategic investors have turned into a prolonged and painful process.
It may be time for Beijing to face its fears and let some companies fall off the cliff. In doing so, it may finally be able to save the ones that really matter.
This article was provided by Bloomberg.