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Manulife CEO Don Guloien, shakes hand with He Xing Chen, 5, at the Shanghai Expo (Kevin Lee/Kevin Lee for The Globe and Mail)
Manulife CEO Don Guloien, shakes hand with He Xing Chen, 5, at the Shanghai Expo (Kevin Lee/Kevin Lee for The Globe and Mail)

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Manulife and the Middle Kingdom's millionaires Add to ...

Growth was initially plodding because of strict rules imposed on foreign investors. Manulife-Sinochem had to obtain a new license for each expansion - sometimes province by province, sometimes city by city. It also had to educate Chinese consumers about life insurance, an unfamiliar product to many potential buyers. "Life insurance to Chinese people is a new product, even a new lifestyle," says Sinochem Group chief financial officer Yang Lin.

After 14 years of hard work, Manulife-Sinochem has built a business that spans 43 cities and 11 cities, bringing it more than halfway to its goal of becoming the first foreign venture to operate across China. It ranks in the top three among Chinese insurers with foreign ownership, battling it out with front-runners AIA and Prudential Corp. PLC.

The relationship between Manulife and Sinochem has developed to the point that Sinochem is looking to partner with Manulife in areas beyond insurance. "We have started to co-operate with Manulife in the energy business areas," Mr. Yang says. "We have started this process. No results yet, but I think before long it will be productive. I am confident we can expand the co-operation from [the]non-banking financial sector to other sectors."

Profits, though, are still minuscule and competition is ferocious, especially from domestic firms. Some foreign companies have already concluded that China is not a market for them. "[Domestic firms have]been far better at penetrating and being successful and growing than the foreign joint ventures," says Dikran Ohannessian, president of Sun Life Financial Asia.

Sun Life decided last year that it would rather hold a smaller stake in a domestic insurer than continue on as a foreign joint venture. It diluted its stake in its Chinese venture, winding up with a smaller part of a larger, essentially Chinese, organization. "The performance, the way we had envisioned it to grow, it wasn't there," Mr. Ohannessian says.

For its part, Manulife insists China is a bet that will play off in the long run. The penetration of life insurance in China is a scant 2 per cent, meaning a relatively small proportion of the population has bought it so far. Nevertheless, life insurers took in $109.2-billion (U.S.) in premiums in China last year, up from $34.4-billion five years ago. The fast-growing market is already the sixth largest in the world.

Manulife thinks China's brand new wealth management industry could be just as big. The country is home to the world's fourth-largest high-net-worth population, after the United States, Japan and Germany, according to rival insurer AIA. Yet only about 600 mutual funds are available in the country of 1.3 billion people, compared to more than 2,400 funds in Canada, with its population of only 33.3 million.

Growth opportunities are ripe given that China's household savings rate stands at a staggering 36.7 per cent, far above the 2 to 5 per cent rates common in Canada and the United States. "The demographics are quite unusual here because of the one-child policy, so people are very, very concerned about saving for retirement," Mr. Guloien notes.

"Out of approximately 1,500 asset managers working in Asia, we are one of only 12 with on-the-ground operations in all of Greater China, in the mainland, Hong Kong and Taiwan, and that is one of the differentiating factors that we will use to build our wealth management business in Asia," Bob Cook, the head of Manulife's Asian business, told investors in Toronto Friday.

Manulife made its first attempt to buy into the Chinese wealth management market in 2008, when it entered the bidding for ABN Amro Teda Fund Management, a Chinese fund company. Manulife lost to South Africa's Old Mutual, which had bid $260.9-million (Canadian).

Less than a year later, the financial crisis forced Old Mutual to abandon its offer. Manulife swooped in, picking up the 49 per cent stake for $156-million (U.S.). "It just happened, it was like a dream come true," Mr. Guloien says.

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