In Depth: Who Was China’s Fallen Insurance Regulator Xiang Junbo?

(Beijing) — The fall of prolific screenwriter-cum-insurance-watchdog Xiang Junbo on Sunday has left many Chinese insurers scrambling for cover.

That is because the central government’s decision to investigate the head of the China Insurance Regulatory Commission (CIRC) for alleged graft caps a yearlong crackdown on corporate raids by insurers that were funded by high-risk, high-yield policies allowed under liberal rules introduced under Xiang’s watch.

Xiang, who took over the reins of the CIRC in October 2011, was earlier credited with overseeing the transformation of China’s cash-rich but sleepy insurance sector into a major force behind global acquisitions. Chinese insurers have gobbled up several expensive high-profile properties, including the Waldorf Astoria New York and European financial institutions after investment rules were relaxed during Xiang’s tenure. Liberalization efforts spearheaded during his term also saw assets held by Chinese insurers nearly triple from 6 trillion yuan ($870 billion) in 2011 to nearly 16 trillion yuan by February 2017.

But all references to Xiang had been removed from CIRC’s website as of Monday, a day after the Central Commission for Discipline Inspection (CCDI) said in a statement that the 60-year-old was being probed for “serious violations of party discipline” — a Communist Party euphemism for corruption.

Xiang is the highest-ranking official serving in a financial supervisory body to get caught in the anti-graft campaign initiated by President Xi Jinping in 2012.

Immediately after the announcement, during a two-day meeting with representatives from branch offices of the CIRC and other government agencies that work with the regulator, the insurance watchdog stressed it had “zero tolerance” for corruption.

A person with knowledge of the matter told Caixin that the party’s anti-graft watchdog had already summoned Xiang for questioning in February, but had stopped short of taking any further action.

The CCDI hasn’t revealed any information about the reasons for investigating Xiang, but some experts point to his involvement in an investigation by U.S. authorities on JPMorgan Chase in 2012. The investment bank was accused of trying to curry favor with high-level officials in China by offering jobs to their relatives in exchange of business opportunities. The U.S. Securities and Exchange Commission in an investigation report named Xiang as one of the officials who asked JPMorgan CEO Jamie Dimon to recruit someone known to him. Last year, JPMorgan settled the case out of court by paying a $264 million fine for violation of anti-bribery laws in the U.S. Neither Dimon nor Xiang was accused of wrongdoing.

Xiang made his last public appearance three days before the CCDI announcement, when he attended a signing ceremony in Beijing with officials of the China Earthquake Administration on a partnership to develop insurance policies to cover natural disasters.

The announcement that Xiang was being investigated came hours after Premier Li Keqiang promised during a speech to the State Council to promote reforms in the financial supervision system and weed out corruption. “The violating supervisors must be punished to serve as a warning to others and preserve order in the financial sector,” Li said.

Industry shakeout

Xiang, a long-time auditor and former deputy governor of the central bank, pushed for further liberalization of the insurance since 2011.

Xiang spearheaded policies to ease investment restrictions on insurers, including lifting the cap on their equity investments after taking the reins of the CIRC. This spurred the once-risk-averse industry to pour its funds into high-risk projects with higher returns. In 2015, the average investment returns on insurance funds rose to 7.5% up from 5% two years ago.

But some insurers started exploiting loopholes in the regulations, such as using insurance funds for leveraged buyouts, which increased the financial risks facing the sector. Smaller firms in particular expanded the sales of controversial universal insurance products over the past few years. These products, which are generally short-term offerings that combine minimal protection benefits with high-return investments, helped insurers raise huge amounts of cash quickly to fund their investments in bonds, securities and the property market.

Data from the CIRC showed that premiums from universal insurance policies exceeded 1.18 trillion yuan by the end of 2016, up from 133 billion yuan in February 2015.

After filling their war chests with earnings from universal insurance policies, some insurers have aggressively purchased stakes in publicly traded companies in the hope of stripping their assets and using them as collateral to take out loans. Such practices rattled investors especially after last year’s high-profile battle between Baoneng Group and China Vanke, with the small insurer gunning for a controlling stake in one of China’s largest real estate developers.

Baoneng’s Foresea Life Insurance is among a number of privately owned insurers that have expanded quickly thanks to the boom of universal insurance products, along with Anbang Insurance Group, which went on a global shopping spree buying up the iconic Waldorf Astoria hotel in New York. This also includes Evergrande Life Insurance owned by Evergrande Real Estate Group and Tianan Life Insurance controlled by Hong Kong-based tycoon Xiao Jianhua. Xiao, the founder of Tomorrow Holdings Group Ltd., has been helping mainland authorities with an unspecified investigation since February.

Small privately owned insurers with questionable shareholding structures have also been mushrooming during Xiang’s tenure due to lax oversight. Between 2011 and February 2017, 41 insurers obtained a license to start new businesses. Industry rules stipulate that a single shareholder can hold no more than 51% in an insurance company, but in practice, many shareholders have gained absolute control of these insurance firms by getting relatives or other proxies to buy shares on their behalf. This has posed challenges to corporate governance and risk control.

In December, Xiang said at a forum that the CIRC would revise regulations, reducing the share ownership threshold for majority investors in an insurance company. He also pledged to closely examine where funds used to purchase insurance company equities came from to prevent “ill-motivated” investors from getting into the insurance industry.

Since late last year, the CIRC has also issued policies to contain the growth of universal insurance policies and punished several insurers, including Foresea Life and Evergrande Life, for violating industry rules.

But the commission and Xiang have been criticized for tolerating insurers and their shareholders who violate the rules. CIRC officials have long said that it was difficult to investigate and collect evidence for such cases. “It is so obvious that one can tell without thinking which companies have problems in their shareholding structure and should be investigated,” one insurance executive said.

Man of Many Hats

Compared with most financial regulators, Xiang has a varied and colorful résumé. Born in 1957 in Chongqing, in southwest China, he joined the army and fought against Vietnamese forces in the 1979 border war.

After being discharged from the military, he enrolled in a degree program at Renmin University in Beijing and specialized in finance. He went on to get a doctorate in law from Peking University.

Xiang spent the first two decades of his career as an auditor at the National Audit Office and rose to the rank of its deputy director in 2002. In 2004, he was transferred to the Chinese central bank, the People’s Bank of China, as a deputy governor and was involved in the establishment of the bank’s Shanghai branch.

In 2007, Xiang took over the reins of China’s third-largest lender, the Agricultural Bank of China. He led the initiatives to reform the bank’s shareholding structure and helped rescue the bank from the brink of insolvency through what was one of the world’s largest initial public offerings at that time in both the Shanghai and Hong Kong stock exchanges. In October 2011, Xiang was named CIRC chairman.

Xiang is also a prolific author and screenwriter. He has penned textbooks on finance, as well as several novels. He is a member of the China Writers Association and has written several popular screenplays on various topics, including martial arts, auditors and ironically, state-led anti-corruption campaigns.

Contact reporter Han Wei (weihan@caixin.com)