Highlights from the last week of China business news.

Insuring against rumors
Ping An’s moves abroad attracted attention this week. The Chinese press reported on a rumor that the insurance giant was planning to raise US$20 billion through a share and bond sale. A rumor that domestic insurers would be allowed to invest more abroad also floated around. The sector is liberalizing, as the State Council has now agreed to let insurers invest in local banks, and this gave credence to the rumors. The hearsay then began to firm up: Ping An wanted to buy into British insurer Prudential, which would explain why it needed to raise money from a stock and bond sale. This theory was supported by the SCMP, which said some Ping An shareholders in Hong Kong who had been surprised by the sudden proposal would vote down a share sale for funding M&A deals. Ping An apparently hasn’t told its shareholders exactly why it needs so much new capital. It might be prudent for it to do so.

Rough week for A-shares
A-share investors watched in horror as the Shanghai Composite Index dropped more than 5% at the start of the week. It was the biggest drop in more than six months, causing it to close below the 5,000 mark for the first time this year. The next day the index sank lower, almost touching 4,500; the Hang Seng Index followed suit. The fear was that Bank of China, as the largest subprime mortgage securities holder in Asia, would announce huge writedowns of those holdings. America’s deteriorating outlook didn’t help. But by Wednesday, the US Federal Reserve cut interest rates by 75 basis points, prompting a rally. The Hang Seng finished 11% higher, while the SCI was up 3.1%. Regional indexes in India, Singapore and Japan rose too. Nevertheless, the fear hasn’t totally dissipated. A new task force has been created to monitor and require monthly reporting of subprime holdings at China’s biggest banks.

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While this tale may be apocryphal (and the person who told it insisted that it wasn’t), it represents the extreme of what some foreign investors encounter as they negotiate Chinese bureaucracy. As one executive of a financial MNC put it recently, “We get approached by all kinds of people claiming to have important connections that can enable us to do this or that …”

In the 1980s, before the individual banking, insurance and securities regulators had been formed, foreign insurance companies came to China in search of a way into the domestic market.

Not knowing whom to call on in the Chinese authorities, they went to the People’s Bank of China which, in the absence of anyone else, was theoretically responsible for insurance.

“Who can we talk to about insurance?” they asked on arriving. They were initially greeted by that glaze of incomprehension and general disinterest (copyright all Chinese state-owned enterprises) until one bright spark piped up, “Hey, you can talk to me.”

It is quite possible this bright spark was responsible for nothing more than cleaning the PBOC toilets - certainly not for governing access to the insurance sector - but he saw an opportunity for a few free dinners.

For quite some time, he was wined and dined by foreign executives, perhaps even blagging a trip to the US so he could “get a real understanding of what they had in mind in terms of operations”.

Eventually the penny dropped and the embarrassed foreign insurers cut him lose. This bright spark didn’t walk away with an across-the-board pension package, but he was probably able to dine out on his experiences a few times - in addition to the free dinners he’s already eaten on the foreigners’ tab, of course.

China’s efforts to reform and improve its woeful public health care system have turned out to be easier than anybody could ever have expected.

In the end, all China needed to do was engineer the appointment of China national Margaret Chan as head of the World Health Organization.

Chan has repaid the favor, praising China’s health care efforts following a meeting with Premier Wen Jiabao this week.

“China has made great progress in building a public disease surveillance and prevention system and has made a huge investment in the field of public health since the 2003 SARS (severe acute respiratory syndrome) outbreak,” Chan told China Daily.

“I’ve noticed that the Chinese Government has made unremitting efforts to improve medical services, especially for the rural population and disadvantaged urban groups.”

Problem solved. Now China can turn its attention to its environmental woes. Forget about dealing with energy efficiency or wastewater discharge, China should simply concentrate on getting its man or woman elected to head the Intergovernmental Panel on Climate Change.

If it plays its cards right, expect a clean, green China to be declared sometime in the next couple of years.

This story from the People’s Daily is encouraging. It says that China’s insurers have started putting money into the stock markets. According to the CIRC, the insurance regulator, “at the end of August, Chinese insurance companies held investment assets worth 1.05 trillion yuan (133 billion U.S. dollars), including 49.9 billion yuan of shares.”

It would seem that the companies have a bit more faith in the market than they used to. Or perhaps they’re just under direct orders to put more money into the stock exchange. The government, after all, has been ferociously trying to get the markets off the ground, bring home star domestic companies who have forsaken them for New York or Hong Kong, and get those devilish foreigners to really start laying on the funds. The average Wall Street banker still considers China’s markets a joke. But serious people are paying attention, and are in for the long haul. Like UBS.

Of course, it’s not like the insurance companies have much choice. With policy sales going up and the population getting old, they need to make some good returns on their cash. They can’t just put it in the bank, as they’ll end up losing money after inflation. Recent purges in Shanghai have brought the legal status of investing pension funds in infrastucture projects into question. Historically the markets have not been a good bet. But things could be looking up…