VZCZCXRO0886
RR RUEHCN RUEHGH
DE RUEHGH #0451 2960156
ZNR UUUUU ZZH
R 220156Z OCT 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7264
INFO RUEHBJ/AMEMBASSY BEIJING 2217
RUEHCN/AMCONSUL CHENGDU 1487
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGZ/AMCONSUL GUANGZHOU 1458
RUEHHK/AMCONSUL HONG KONG 1643
RHEHAAA/NSC WASHINGTON DC
RUEHSH/AMCONSUL SHENYANG 1479
RUEHGP/AMEMBASSY SINGAPORE 0180
RUEHIN/AIT TAIPEI 1281
RUEHGH/AMCONSUL SHANGHAI 7856

UNCLAS SHANGHAI 000451 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR OASIA-DOHNER, HAARSAGER, WINSHIP, YANG, CUSHMAN 
USDOC FOR ITA DAS KASOFF, MELCHER, OCEA 
 
E.O. 12958: N/A 
TAGS: CH ECON EFIN PREL
SUBJECT: REGULATOR SUPPORTING DOMESTIC INSURANCE FIRMS 
 
REF: SHANGHAI 419, SHANGHAI 402, SHANGHAI 399 
 
¶1.  (SBU) Summary.  American International Group (AIG) is coming 
under additional scrutiny from the China Insurance Regulatory 
Commission as AIG prepares to possibly spin off parts of its 
Asian insurance operations.  CIRC appears to be mixing its role 
as a regulator of China-based insurance companies with 
intentions to support domestic Chinese insurers.  While AIG has 
made several accommodations for CIRC's daily reporting 
requirements, these requirements continue to be burdensome.  End 
summary. 
 
Regulator Supporting Chinese Firms to Purchase AIG Assets 
 
¶2.  (SBU) CIRC appears to have a conflict of interest in using 
the information it gains from its current unprecedented access 
to AIG's books, a top AIG official in Shanghai suggests.  CIRC 
probably is passing the information on to domestic Chinese 
insurers as it offers them support for purchasing business units 
AIG is considering selling, said the AIG official.  CIRC 
officials at a recent meeting in Beijing with AIG China 
representatives were irritated that AIG was moving ahead with 
initial planning for spinning off business units before 
notifying CIRC, and quickly involved them in a telephone 
conference call with CIRC Chairman Wu Dingfu, said the AIG 
official. 
 
¶3.  (SBU) CIRC officials are particularly interested in AIG's 
plan announced in early October to sell a minority stake in the 
Asia operations of its American Insurance Association (AIA) life 
insurance business, said the AIG official.  (Note:  The holding 
company is publicly listed in Hong Kong, and has branches 
throughout Asia.  There are three branches and five sub-branches 
in China.  End note.)  AIG is looking for a strategic minority 
investor in the Hong Kong parent, said the AIG official, with 
potential partners in China including China Life, China 
Investment Corporation and Ping An Insurance.  CIRC recently 
told a meeting of Chinese insurance companies that it supports 
China Life's bid, said the AIG official. 
 
¶4.  (SBU) Separately, CIRC is supporting People's Insurance 
Company of China (PICC) to repurchase the 9.9% stake AIG took in 
PICC in 2003, said the AIG official.  AIG was obligated to hold 
the stake for a five-year lockup period that expires next month. 
 
CIRC Continues Heavy Oversight of AIG 
 
¶5.  (SBU) CIRC still requires AIG to provide daily prior 
notification of its cash flow out of China, according to the AIG 
official, causing a substantial compliance burden.  (See 
reftels.) The Beijing representative visits CIRC headquarters as 
much as several times a day, said the AIG official, and several 
staff are dedicated to meeting the compliance requirements.  AIG 
is allowed to make payments up to RMB1 million to non-AIG 
affiliated overseas entities without pre-approval by CIRC, but 
any payments over the RMB1-million limit must be pre-approved by 
CIRC, said the AIG official. To date, AIG has received one such 
approval, and a second request is still being reviewed by CIRC. 
The AIG official said that CIRC has asked AIG to stop all 
payments to AIG affiliates in the United States regardless of 
the amount. AIG has proposed to CIRC that reserve funds be 
transferred from U.S. AIG affiliates to China to be used for 
possible claims payments overseas, and CIRC is currently 
reviewing the proposal, said the AIG official. 
 
Comment 
 
¶6.  (SBU) That CIRC would coordinate closely with domestic 
Chinese insurance firms is no surprise, but the situation here 
appears to take this a step farther, with CIRC actively 
eliciting information from AIG that would be helpful to AIG's 
Chinese competitors in acquiring parts of AIG's business.  We 
have not corroborated the information provided by AIG with other 
insurance industry contacts. 
 
CAMP