The Covid-19 pandemic in 2020 has accelerated digitalisation efforts in many sectors in China and we will focus on digital development in Chinese financials and healthcare industries in this note. For the banking sector, there has been an increasing shifting towards digital distribution platform. Mainland China retail clients are much more receptive in buying financial products via digital platform. This is evidenced by the falling market share of banks in mutual fund distribution vs. that of independent fund distribution platforms, which are predominately internet platforms.
Having said that, the regulatory tightening in China’s fintech development has been stepping up since end-2020. Despite that several fintech tightening policies were issued during July-20 to Feb-21, there are key issues to watch out for including i) formal issuance of the new payment regulation; ii) capital regulation on financial holding companies; and iii) data regulation. We believe Chinese banks could benefit from fintech regulatory tightening from both consumer loans and wealth management business perspective. Among Chinese banks, we believe China Merchants Bank (3968 HK) and Ping An Bank (000001 CH) are better positioned retail banks.
In the insurance industry, the lowering of regulatory hurdles to enter the domestic insurance market has supported the development of insurtech firms in China over the past few years. Disruption from this segment has started to disrupt the traditional Chinese insurers through the online availability and distribution of lower priced and simpler product types. Another form of disruption has come from the issuance of cheap medical indemnity insurance products by local governments into the system, facilitated by online distribution channel such as WeChat/Alipay. Over the medium term, as disruptive technology continues to gather momentum, traditional insurers who have been taking proactive steps to mitigate the threat from online insurance and who can effectively upskill their agency force should fare better. Among Chinese insurers, we view Ping An Insurance (2318 HK) is ahead of its peers in embracing digital empowerment.
China’s online pharmacy penetration is estimated to grow at a CAGR of around 30% over the next decade to about 29% in 2030e. Online medical consultation is currently growing from a low base with growth driven by key online healthcare players building their healthcare ecosystem, supporting by synergies with their parent companies. For instance, there are additional synergies that Ping An Insurance hopes to derive from integrating its healthcare eco-system with commercial health insurance.