CHINA has further tightened restrictions on purchases of Hong Kong insurance products by mainland investors, sources said, narrowing another loophole in the capital account seen as a potential gateway for capital flight.

    The People’s Bank of China (PBOC), the central bank, this week restricted the use of third-party payment providers by mainland Chinese to buy life insurance and other kinds of insurance policies in Hong Kong. Insurers, including Prudential and BOC Life, have already limited or suspended online payments using China’s ubiquitous UnionPay bank cards, according to industry sources who received the communication from the central bank.

    These purchases had become a way for Chinese individuals to skirt restrictions on capital outflows by disguising an investment as a purchase of a product, in this case an insurance product that served both as a store of wealth and as offshore collateral for other potential investments like property, analysts and those working in the insurance sector say.

    The Chinese mainland has seen accelerated capital outflows over the past year amid a slower economy, concerns over yuan depreciation, and volatile stock markets, prodding the government to curb overseas investment channels.

    A month ago, the government placed transaction limits on the use of UnionPay cards to buy Hong Kong insurance products — a popular method for Chinese individuals to move money out of the mainland.

    The combined moves curtail a potential line of business for the insurers and UnionPay, a State-owned monopoly that has been expanding overseas on the back of travelling Chinese consumers.

    “UnionPay card payments used to be the most popular channel among our clients,” said a person with direct knowledge of the matter in Hong Kong. “But now, this channel has also been tightened significantly, which really makes it difficult to pay for big-size policies.”

    Mainland people are now using less popular, online payment methods to buy insurance policies, this person said.

    China’s central bank has also prohibited the use of All-in-Pay, a major third-party electronic payment system, by mainland individuals for any life insurance and investment-related products, people familiar with the new rules say.

    Chinese regulators have ordered all insurers to cap online transactions involving UnionPay at 30,000 yuan (US$4,609), starting March 14. While for clients that swipe UnionPay cards to pay premiums, Prudential capped the number of transactions per year to 10 and each transaction at US$5,000. Prudential declined to comment.

    The problem for the Chinese Government is that there are plenty of other ways for Chinese investors to move money out of the country simply by using their UnionPay cards.

    UnionPay cracked down on retail purchases in Macao. The enforcement successfully sealed off that channel, but without making a noticeable dent in net outflows.

    “The top level has its policies, while those below have their own ways of getting around them,” said a sales manager at Hang Tang Wealth Co. Ltd., which arranges trips for clients to buy insurance products in Hong Kong.

    (SD-Agencies)