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Ping An puts HSBC stake sale behind it

 

China's No. 2 life insurer faced an uncertain future earlier this year when its biggest shareholder, HSBC Holdings PLC, sold its entire 15.57% stake in the company to a Thai billionaire.

Analysts worried at the time about Ping An Insurance (Group) Co.'s operating outlook; HSBC had provided the insurer with significant help in establishing business foundations such as an integrated back office and risk-control mechanism. But with the dust settled on HSBC's exit, Ping An's president, Alex Ren, says those worries are behind the company, which is now focused on expanding its role in banking and asset management.

Ping An is a relatively young player in the country's financial-services sector, which is dominated by state-owned players such as its bigger rival China Life Insurance Co. Early on, Ping An saw its first and only overseas investments—amounting to about $3.78 billion that it invested in Belgian-Dutch financial-services company Fortis NV—wiped out when the European company was nationalized and sold off during the 2008 financial crisis.

That has prompted Ping An to focus on businesses at home, which helped lead to a 44% jump in profit over the past four years—a stellar performance compared with China Life's 66% profit decline in the same period.

Mr. Ren, a 43-year-old executive who has spent his career at Ping An, met with The Wall Street Journal in Hong Kong to discuss how he is grappling with China's slowing economy, changes in financial regulations and the fallout from the HSBC exit. Edited excerpts:


WSJ: What do you make of slower economic growth in China?

Mr. Ren: China is, on one hand, under the process of destocking, or reducing excess capacity, and, on the other, looking for new growth drivers.

We're happy to see that the Chinese authorities are quite calm in dealing with the slower growth, and didn't roll out many stimulus policies. This is crucial for reforming the country's economic structure, which should focus more on domestic consumption, people's livelihood and environmental protection.


WSJ: China is also reforming its financial markets. How does that affect Ping An and other financial institutions?

Mr. Ren: Ping An will benefit from these reforms. Nowadays, the vast majority of China's 140 trillion yuan ($22.8 trillion) in assets are sitting on banks' balance sheets, and the rest are split among insurance firms, trusts, securities and asset-management companies.

But the big trend is "disintermediation" of banks' assets, which means: In the past, many companies could only borrow from banks, but now they can raise funds in the markets by issuing bonds or shares.

So insurers, securities and asset-management firms now have business opportunities, which were only available to lenders before.

More importantly, bank loans, which used to be corporates' major financing channels, are set at highly regulated interest rates.

When financing channels gradually shift to other nonbank institutions via wealth-management products or bonds, interest rates will be determined by risks, the borrowers' credit ratings and debt profile.

That's exactly what China's financial industry participants should do—to refine our credit ratings (system) and improve risk disclosure so that investors can make investment decisions based on risk analysis.


WSJ: What distinguishes Ping An from its competitors?

Mr. Ren: We've developed three core businesses—insurance, banking and investment. That makes the group more resilient. We were the first Chinese financial institution to establish an integrated operating center—first in Shanghai, then in other cities with lower costs.

Thanks to this back office—the establishment of which was helped by HSBC—we now have lower operating costs and better efficiency.


WSJ: Ping An has been ahead of its competitors in terms of technology, particularly in the case of mobile sales. What's next for this side of the business?

Mr. Ren: We'd like to offer one-stop service for customers. For example we've launched an online account named "One Account Management Services," or "Yi Zhang Tong" in Chinese. The account allows customers to look for financial products provided by Ping An, as well as by other financial institutions. Young customers are increasingly active and like comparing various products due to enormous amount of information on the Internet. So if we don't address customers' needs, we may lose them.


WSJ: Chairman Peter Ma has driven the company's focus on technology platforms. Why is that important to him and to the company?

Mr. Ren: Chairman Ma is an entrepreneur who's cautious of risks and curious about new technology. He always asks himself: "Will I fall behind [rivals] in five years? How can I be ahead of competitors?" He doesn't only ask this of himself, but also pushes the whole management team to think about it.

The technological transformation may not happen that fast [in China], but that will definitely change the landscape of the financial industry. We must be well-prepared in advance.

WSJ: HSBC became Ping An's biggest shareholder after buying shares both before and after its Hong Kong listing in 2005. How are you dealing with the loss now that HSBC sold its entire stake early this year?

Mr. Ren: We are thankful to HSBC, which supported us over the past decade but Ping An has a vast and diversified base of shareholders, unlike many Chinese peers that are largely owned by the nation, so we won't easily change our business strategy just because of a change of one or two shareholders.


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