American International Group Inc., founded in Shanghai, is rescued by the U.S. government to stave off a deepening global financial crisis. In China, people are more alarmed by poisoned milk powder.
``I have never heard of AIG,'' said Liu Gan, 87, who used to work for the Foreign Affairs Ministry, as he shopped for dumplings at a Beijing supermarket. ``I am more concerned with the milk scandal. I have a 9-year-old granddaughter.''
Chinese Premier Wen Jiabao yesterday ordered an overhaul of the nation's dairy industry after three children were killed and 1,300 others were sickened by milk powder contaminated with the industrial chemical melamine.
The U.S. Federal Reserve late Tuesday agreed to loan AIG $85 billion, roiling markets from New York to Shanghai, where the company was founded almost 90 years ago by a former ice-cream parlor owner. New York-based AIG has 3 million policyholders in China, giving it the biggest market share among foreign insurers.
The lifeline to AIG prevented the collapse of the U.S.'s biggest insurer. A meltdown would have rippled through the global economy because AIG provides insurance on more than $441 billion of fixed-income investments held by the world's biggest institutions.
AIG, whose Chinese units are known as AIG General Insurance Company China Ltd. and American International Assurance Co., was operating normally yesterday, the nation's Insurance Regulatory Commission said. The commission is assessing the impact of AIG's woes on the domestic insurance industry and will use relevant measures to prevent risks, the agency said without elaborating.
Stocks Fall
China's CSI 300 stock index fell 3.6 percent yesterday to the lowest in almost 21 months, led by financial companies, as investors reacted to the collapse of New York-based Lehman Brothers Holdings Inc. and the AIG bailout.
``Financial stocks have slumped over the past two days because of this U.S. credit crisis, but people will get over it once the situation is under control,'' said Zheng Jie, who manages 38 billion yuan ($5.6 billion) at Industrial Fund Management Co. in Shanghai.
The milk scandal is a more lasting issue.
``People are going to remember it for a long time and it will take brands named in this scandal at least several years to regain consumers' confidence,'' he said. ``This is a much bigger issue Chinese people and the Chinese government are facing now.''
`Fundamental Change'
The State Council, China's cabinet, yesterday vowed ``fundamental change'' and said the dairy industry ``must seriously learn from the mistakes.'' The government dispatched 5,000 inspectors to check milk producers.
Since Saturday, the milk story has led the official China Central Television's flagship evening news program. The state- owned Beijing Youth Daily splashed the baby formula story on the front page yesterday, with the financial stories inside.
At AIG's China headquarters on the Bund in Shanghai, an eight-story, neoclassical structure built for the company in the 1920s, about a dozen customers lined up at service windows Wednesday morning. None were aware of the company's struggles.
A man who identified himself only as Qin said he didn't know AIG was in trouble. He was there with his parents seeking help with the family's health and life insurance policies.
``The policies should be OK,'' said the man in his 30s. ``Our family bought their products more than 10 years ago, and we are happy with everything so far.''
AIG, then known as American Asiatic Underwriters, was founded in Shanghai in 1919 by Cornelius Vander Starr, a U.S. entrepreneur.
Post-Revolution Exile
It was exiled from China after Mao Zedong took power in 1949. Former Chairman and Chief Executive Officer Maurice Greenberg negotiated the company's return in 1992, four years before the next foreign insurer, Toronto-based Manulife Financial Corp., opened a branch in China.
Greenberg, who succeeded Starr, already had ties to China, making annual trips to the country starting in 1975 and developing a close relationship with former Premier Zhu Rongji.
AIG has about 30,000 agents in China, said company spokeswoman Shen Wei. It has more than 700,000 agents, brokers and sales representatives worldwide.
AIA's income from life insurance premiums was about 4.5 billion yuan in the first seven months of this year, giving it 19 percent of the market among foreign insurers, Insurance Commission data show. AIG General's income from property insurance premiums was 536 million yuan in the period, or about 31 percent of the market among foreign insurers.
Dwarfed by China Life
Those figures are dwarfed by China's domestic insurers.
China Life Insurance Co., the nation's biggest insurance company, reported gross premiums and policy fees of 79 billion yuan for the first half, 24 percent more than a year earlier.
AIG gets a third of its revenue from life insurance and retirement services outside the U.S. The company said in April that profit from overseas units would climb 88 percent to $12 billion by 2012.
The insurer's largest Asian markets are Japan and Taiwan, where the insurance bureau said AIG was operating normally yesterday. The bureau also said it was monitoring developments at AIG's local unit, Nan Shan Life Insurance Co., to protect client rights.
AIG's situation is ``scary,'' said Wu Jiangang, a Beijing- based analyst for Guosen Securities Co.
``If they have finance problems, the impacts on other insurers in China are material and policy holders will face large losses,'' Wu said. For now, though, ``the Chinese government is busy with domestic problems.''
