Strong policies support economic resilience
Deepened reform and opening-up of nation's financial industry will attract more high-quality overseas investment
Editor's note: The Chinese government has adopted a series of measures to boost economic growth, including stimulating consumption, further opening up to foreign investment, supporting private enterprises and encouraging technology innovation. China Daily interviewed senior executives of well-known multinational companies to share their views on the country's economic development and their companies' business strategies in China.
Q1: China has rolled out a series of measures to stimulate consumer spending and boost economic growth. What opportunities are there for your business?
Q2: Overall Chinese economic growth has slowed, but the top-line numbers remain relatively robust. In what areas do you plan to increase investment or employment?
Q3: What business opportunities do you see as China continues to pursue higher-quality growth, which is increasingly driven by services and consumption?
Q4: What do you see as the most resilient part of the Chinese economy and how do you plan to align your business with it?
Q5: How has your company adjusted to the uncertainties brought by trade frictions between China and the United States?
Q6: China has adopted policies to further open the economy to foreign investment, to transform financial services and to promote private enterprises. How are you planning to take advantage of these policies?
Q7: How does your company plan to take advantage of the technology transformation opportunities in China over the next decade?
A1 We are deeply encouraged by the measures taken by China's State Council to stimulate consumer spending. China is one of the world's greatest economies and boasts enormous potential in terms of market capacity and development, with its population of nearly 1.4 billion. To meet the current and potential needs of consumers, Home Credit financial services help residents achieve cross-period optimization of consumption behaviors, playing an active role in expanding domestic demand and increasing consumption.
The policy to encourage financial institutions to innovate consumer credit products and services as well as promote the development of consumer financial organizations has ushered in tremendous opportunities for professional consumer finance companies like Home Credit. With this favorable policy, Home Credit's strengths in service quality, risk control, diversified service scenes, and more are playing a key role in promoting the development of the consumer credit market and, more importantly, contributing to the sustainable development of China's high-quality economy.
A2 As incomes and consumption continue to grow, China's domestic demand has become a powerful force in driving economic growth. With forward spending for premium products and services gradually becoming a new norm for young people here, Home Credit aims to unlock new consumer finance scenarios based on the changing preferences and habits of millennials. Home Credit has expanded its product and service categories from traditional 3C products (computers, communications and consumer electronics) to household appliances and new service areas with strong demand, such as fitness, lifestyle, fashion and beauty, tourism, and more.
Meanwhile, there is a massive consumption potential in China's third-and fourth-tier cities as well as rural areas that remains unexplored. Because of its comparatively imperfect credit data and limited profit due to the small amount of loans, the traditional bank credit business has not been able to fully cover consumer demand as of yet.
A3 As consumption becomes the primary driving force of China's economic growth, we have identified several business opportunities.
First, we have observed a rise in diversified shopping scenarios. As incomes have skyrocketed, consumption demand has gradually diversified. Previously, Home Credit's main consumption scenario was to provide loans for mobile phones. However, we realized that the growth rate of the domestic mobile phone market has slowed, and that future opportunities are in service-related areas. That's why Home Credit has now entered emerging scenarios such as household appliances, home decor, beauty, tourism, vocational education, and fitness, to match people's wide-ranging needs for a high-quality life.
Second, with the integration of online and offline services, the rise in diversified services has propelled the industry to new heights. In order to meet the wide range of customer service needs and ensure high-quality customer experiences along the way, Home Credit has built a multichannel service system covering an official website, mobile app, WeChat account, Weibo account and customer service hotlines.
A4 From our point of view, the most resilient part of the Chinese economy is its vast consumer market and the strong macro control exercised by the Chinese government.
The vast consumer market has provided China's economy with great space to play. We all know that China is the world's most populous nation, with approximately 1.4 billion people. However, what is more noteworthy is that the population of China's rural areas is 564.01 million in 2019, according to the latest data from the National Bureau of Statistics. As the small number of loans in these regions has led to imperfect credit data and limited profits, traditional bank credit businesses are unable to fully meet consumer demand. With technological assistance, Home Credit is providing practical and transparent financial products for consumer groups that lack loan channels, enabling them to obtain loan support in the absence of credit.
The strong macro control on the part of the government has also made China's economy more flexible. The hand of the State in guiding and regulating the economy has achieved remarkable results over the course of its development. This is the main reason why China was able to overcome difficulties during the Asian financial crisis of 1997 and the global financial crisis of 2008.
A5 China's economy remains resilient, with domestic demand as its key to growth. Greater attention needs to be paid to the delicate balance between economic growth and stable leverage, as an important part of risk prevention.
According to a recently released report on China's leverage rate, short-term consumer loans amounted to 9.1 trillion yuan ($1.28 trillion) as of the end of June, and are the main driving force in the rise of leverage ratio. As short-term consumer loans correspond to real household consumption, they are also playing an important role as a catalyst for China to shift from an investment-driven economic growth model to a consumption-driven one. With the introduction of relevant regulatory measures, we believe that the promotion of short-term consumer loans for consumption purposes will be revealed.
A6 This is exciting for Home Credit. China boasts a world-class business environment, and the deepened reform and opening-up of the financial industry will attract more high-quality foreign investment to China. This will lead to the establishment of more foreign funded consumer finance companies, which, together with Chinese enterprises, can provide inclusive financial services to Chinese consumers, support consumption upgrade, and inject dynamism into the China market.
These policy changes have sent a positive signal to Home Credit. A market environment always requires competition to flourish and advance. It also proves that Home Credit has the abilities to maintain a leading position, not just because it is the first foreign consumer finance company to enter the market.
A7 Benefiting from the development of financial technology in China and providing convenient, high-quality services to the market's consumers is a long-term goal of Home Credit.
To provide safe, efficient, and convenient services, it is particularly important for financial enterprises to establish a multilevel concept of financial science and technology security prevention and control. Home Credit applies a wide variety of technologies throughout its entire service process, from underwriting to post-loan services, so as to better interact with and serve consumers. Through data analysis and review, paperless loan processing, facial recognition technology, optical character recognition, mobile app services, and voice-based robot customer services, technologies have not only boosted Home Credit's operational efficiency, simplified its operational processes, and reduced operating costs, but they have also enhanced the consumer experience and created more convenient and user-friendly consumer services.
A1 These measures are to help improve domestic consumption and economic growth. We believe these are timely measures to rejuvenate the slowing economy, as retail sales growth slowed to an average of 8.3 percent from January to July this year compared to 9.3 percent for the same period in 2018. Some measures, including the purchase of new energy vehicles and the relaxation of restrictions on car purchases will directly and positively impact motor insurance in China. Other measures that encourage customization of production designs, increasing domestic sales of export-focused goods and services, and expanding cross-border e-commerce imports to more cities will also grow production, logistics and liabilities-related insurance products.
A2 Some sectors of the Chinese economy are performing well, including real estate, services and the digital economy. In particular, China's digital economy is rapidly becoming a main driver of the country's economy. The gross value of the digital economy increased by a strong 21 percent in 2018 from the previous year and accounted for some 35 percent of China's GDP. The e-commerce sector (online retail sales and electronic transactions) in China has grown rapidly to become the largest in the world. Digitalization is also having a strong impact on how insurers create value from devising new and innovative products to settling claims in a more efficient way. Investing in digital capabilities and risk management in a rapidly evolving risk landscape is arguably a priority for all insurers operating in China. Green development is also on top of the Chinese government agenda and that means we are looking at a ramp up in our environmental protection-related business lines. We continue to invest broadly across our business in China, as there are many areas of growth and potential growth. Our full-time head count has grown from 82 in 2013 to more than 170 at present. We expect to grow that to over 210 in the next year or so.
A3 The growth of retail sales and consumption is accompanied by the rise of digital ecosystems. The ability of digital ecosystems to capture consumer data and provide tailor-made services, often based on big-data analytics and the use of advanced algorithms, is rapidly becoming a key competitive advantage for financial services providers. Insurance companies are in turn looking to develop their own ecosystems or partner those with existing ones. For instance, online motor platforms that integrate car sales, financing and after-sales services can be leveraged to offer better consumer experience for motor insurance buyers. At the same time, the rising importance of intangible assets and ever-rising threat of cyber incidences also open up additional business opportunities for insurers. The emergence of consumer purchasing power not only has an impact on economic growth, but also challenges the risk landscape and business model of insurance companies on product design, distribution, and claims, among others.
A4 The Chinese economy has shown extraordinary resilience in the face of major external shocks including the 2008-9 global financial crisis. From a risk management perspective globally, we want to help make countries more resilient. For example, how governments - at the federal or even provincial level - help citizens recover from a major natural disaster. Robust disaster relief efforts and strong government organizational capabilities are key to disaster relief and recovery, but provincial governments will have to shift from post-to pre-disaster risk financing to improve fiscal certainty and better make use of budgets.
Chinese enterprises will also need to better understand their vulnerability to third-party suppliers, for instance, in order to minimize downtime or closures due to unexpected events. Households in China will also need to improve their resilience against unforeseen major life events like large unexpected medical expenses as well as from the risk of natural catastrophes. To do this, the close collaboration of all stakeholders, including (re) insurers, is needed.
A5 Insurance is a long-term business, and ours is based on long-term projections and trend analyses. We continue to see China as one of the most promising insurance markets in the world over the coming decades and we have not changed our projections and plans. So far, we have seen China's export manufacturing sector affected by trade uncertainties. Domestic consumption may be dampened by softer consumer sentiment but the new measures announced recently should help to shore up demand considering the large domestic market China has.
A6 Foreign investors will benefit from another round of openness in Chinese financial markets. Every time China takes yet another step forward, foreign investors benefit in different ways. Swiss Re has been in China for a long time, and our accumulated risk knowledge and commitment to providing best in practice insurance services and solutions help growth and development. A further opening of the financial markets will expand the risk absorbing capacity of insurers in China, as well as options for investment diversification.
A7 The transformation is already happening. Some of the foremost artificial intelligence breakthroughs are coming out of China. As far as Insurtech goes, a lot of companies are looking at what China is doing. For us, we intend to bring our knowhow, partner that with the best of what Chinese companies are doing and create new value chains and bridge protection gaps. This is expected to have an impact on entire insurance value chains, while at the same time transforming the traditional business model of insurance. Ultimately, Insurtech will offer superior customer experience and help to broaden the reach of insurance that enables China to be more resilient and adopt the necessary risk transfers it needs to develop even further. Our partnership with different Chinese stakeholders to research different tech topics such as understanding the new risk landscape, tapping into new risk pools and enhancing operational efficiency are in place, and we are looking to ramp that up even further. At the same time, we stand ready to share our research and knowledge from other advanced markets with our Chinese partners as we believe this is the way forward to make a connected world even more resilient with the appropriate solutions for each market.
(China Daily Global 10/11/2019 page9)
