China Insurance: Media reports of possible tax on interest income from government bonds

Citing a Bloomberg report on Wednesday November 11 that the PBOC has been gathering feedback from banks on the potential impact on demand for central and local government bonds if the current profit tax exemption were removed (with the PBOC and Ministry of Finance not responding to inquiries), Goldman Sachs argues the exemption is an important profit contributor for Chinese insurers. Central and local government bonds make up 24-46% of the investment portfolio of covered Chinese insurers as of FY25 and were the main driver behind the 7-18pt reduction in effective tax rate in 2025 from non-taxable income; the model factors in a stable positive benefit from non-taxable income going forward. The report highlights three factors determining the potential profit impact: the resulting move in bond yield (using 10-year CGB yield, a rise from 1.6% to 2.13% would fully offset removal of the exemption and leave profit mostly unaffected); whether existing bonds will be grandfathered, drawing paral