GO
| HSI1 | 23,637.60 | -370.95 | 195.86B |
| HSCEI1 | 7,937.53 | -119.23 | 71.74B |
| Back Zoom + Zoom - Block Traded | |
|
2026-11-12 12:05:11 Goldman Sachs published a research report saying media reports indicated that the People's Bank of China recently surveyed banks to collect views on the potential impact on demand for related bonds if the existing profit tax exemption for central and local government bonds were removed. The PBOC and the Ministry of Finance have not responded to inquiries. The broker believes that the profit tax exemption on government bonds is an important source of earnings for Chinese insurers. As of FY2025, central and local government bonds accounted for 24% to 46% of the investment portfolios of the Chinese insurers covered by the broker, and were a major driver behind a 7 to 18 ppts decline in effective tax rates in 2025 due to non-taxable income. The broker's model has already incorporated the stable positive benefits brought by non-taxable income. The broker pointed out that if the exemption is removed, the potential earnings impact will depend on several factors. First is the trend of bond yields. Taking 10-year government bond yields as an example, if yields rise from 1.6% to 2.13%, the increase could fully offset the impact of removing the exemption, leaving earnings broadly unaffected. If the yield increase is smaller, effective investment returns may decline, and vice versa. Second is whether existing bonds will remain exempt. If a similar approach to that adopted in August 2025 is used, under which bonds issued before 8 Aug 2025 remain exempt, the near-term impact may be limited because existing bond portfolios would not be affected, while life insurers typically have average durations of 15 years or longer. Third is whether pricing for new products will be adjusted accordingly. Pricing rates for new policies are regularly referenced against 10-year government bond yields, loan prime rates and deposit rates. If removing the exemption reduces effective investment returns, the impact could be partially mitigated by lowering pricing rates for new products, thereby reducing the liability cost of new policies. Overall, the broker views this as a potential headwind for Chinese insurers as they continue to cope with challenges in a low-yield environment. It believes insurers with strong balance sheets, lower liability costs and better asset-liability management will be better positioned. In particular, property and casualty insurers are in a relatively more favorable position than life insurers due to their lower liability costs. (ad/da)~ AASTOCKS Financial News Website: www.aastocks.com This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. | |