The location of foreign insurance companies in China

The potential of the Chinese insurance market is enormous, as current per capita insurance spending is a fraction of that in other developing economies. The Chinese authorities are aware that the development of an indigenous insurance capability is essential to China's continued economic restructuring, and that foreign insurers have an important role to play in this process. They have thus started to liberalise, albeit cautiously, the policy environment for foreign insurers. One of the crucial strategic questions for such insurers is where to establish their representative offices within China, given the size of the country. This paper uses a Conditional Logit Model to assess the determinants of location choice using a sample of 138 foreign representative offices established over the period 1992-96. Proximity to the headquarters of the Regulatory Authority, openness for the award of operating licenses, current and future market demand, and the presence of other foreign investment are all found to have significant effects upon the choice of location. Cost and infrastructure considerations were generally found to be of little significance.