PPF negotiating to set up JV in Sichuan
By Chen Yao (China Business Weekly)
Updated: 2004-04-28 14:47

PPF, the Czech Republic's largest financial conglomerate, plans to take some "baby steps" in China's insurance market before launching a nationwide expansion, the company said.

PPF is negotiating with the Chengdu City Commercial Bank, a regional lender based in Sichuan Province, to jointly launch life insurance policies, Ladislav Bartonicek, vice-chairman of the company's board, said last week.

"Our strategy is to start our business regionally, first keeping the joint-venture project at a manageable size," he said.

"Moreover, we hope, by doing that, we can dodge head-to-head competition with other international players."

Bartonicek said the joint venture could involve more than US$10 million. The company will soon file its licence application to China's financial authorities.

PPF, with more than 5.3 billion euros (US$6.26 billion), offers both banking and insurance services to residents and institutional investors in the Czech Republic.

Cespo B. V., the group's insurance arm, has, over its 177 years of operation, established itself as the premier firm in the Czech insurance market.

About half of the country's residents have at least one policy with the firm.

"We hope we can transfer our experiences from the Czech market to the joint venture in China," said Bartonicek.

He noted the company lacks knowledge about marketing insurance policies in Asia.

Although PPF has opened offices in Slovakia, Cyprus and Russia, the company said the joint venture marks the first time the firm has stepped beyond Europe.

China's massive population -- more than 120 times greater than that of the Czech Republic -- and the relatively low cost of providing coverage are the main attractions of the Chinese insurance market, Bartonicek said.

"That has created huge market potential and opportunities for all insurers, small and large," he said.

A recent survey by US-based Credit Suisse First Boston (CSFB) indicates there is a strong, fundamental demand among Chinese consumers for insurance.

The CSFB survey, which involved more than 2,300 respondents in 10 Chinese cities, found a growing number of non-policy holders were less likely to buy insurance.

Approximately 49 per cent of households in the 10 cities have insurance, compared with virtually none 20 years ago, indicates the survey.

Experts warn the insurance market in China's well-off eastern region is showing signs of saturation, as domestic and foreign insurers are competing fiercely for their slices of the pie.

Although China's four largest insurance firms still dominate the market, 36 foreign insurers have obtained permits to establish operations in 13 cities.

PPF plans to focus on the life insurance market in Sichuan Province, which is China's most populous province.

The company's co-operation with the local partner will "guarantee the project's smooth operation," Bartonicek said.

Sichuan's economy has taken off in recent years, and has attracted foreign investments, including some from Germany, which neighbours the Czech Republic.

"The proposed opening of a direct air route between Germany and Sichuan has sent a strong signal that the province's economy is becoming more global," he said.

"We clearly do not want to miss the timing."

The Czech Republic -- with Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia -- will join the European Union on May 1.

Integration of the Czech economy into other European countries will only make its financial industry healthier, and more competitive, Bartonicek said.

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