Below is the transcript of a CNBC Exclusive interview with Oliver Bäte, Chief Executive Officer and Chairman, Allianz. The interview was first broadcast on CNBC's The Rundown on 18 September 2018.
All references must be sourced to a "CNBC Interview'.
Interviewed by CNBC's Nancy Hungerford
Nancy Hungerford (Nancy): I would like to start first on your Asia strategy since we are here in Singapore and more specifically in China. When you look at the market in China there is a lot of excitement among firms to get in there but I do wonder for your business how the environment is at the moment competitively speaking to try to win over new business there?
Oliver Bäte (Oliver): So we have been in China in many ways for a long long time. By the way, the first Chinese policy we rode to the beginning of the 20th century. But until very recently it was very difficult for us and other foreigners to compete in China. That is changing. I think the Chinese government is really committed to open up the markets and we are very well represented with all our branches asset management as a staunch business where the world's largest assessor for any country. So we see the market finally opening up and we are very hopeful for the future. We've just closed our joint venture agreement with JD dot com and got regulatory approval to start. So we're very eager to start in the digital age so we've decided not just to go into the traditional business but really go into the digital era because this is where China is probably leading worldwide now.
Nancy: How do you compete though with the likes of Ping An because we see what they're doing digitally. And someone may say 'oof this is a tough battle to fight
Oliver: Absolutely and they're fantastic company. They've done brilliant things but they're one point three billion consumers and have lots of choices. So I think in such a vast market there's also a space for us and with JD we have a very very strong partner. They are very innovative. They have the trust of the consumer. They go the last mile. So we know in China that we have to do it with a Chinese partner and we're very happy with what we have.
Nancy: Would you like to see it easier though to go along without a partner? I mean we think of some other segments of your business such as the asset management side certain ownership restrictions quotas that are in place. Are you seeing a willingness in the authorities to change any of that?
Oliver: Yes they are. And even in the asset management space, you can have wholly owned subsidiaries now and they want. And you have in my opinion to think about China in two ways serving China inside of China and serving China outside of China. So I think one of the most underestimated opportunities is to serve China as it becomes a part of the world outside of China as they build the belt and road initiative outwards as they start to invest more different in a differentiated way outside of China. And we have been helping that country in many ways. We manage a lot of their foreign exchange exposures and that is very strongly growing. So we want to serve China inside of China while also very much outside of China where they need help and whether I think they need friends
Nancy: Can you make money easily in China though and I ask that question because I spoke to Martin Gilbert from Aberdeen earlier about their own experience there and the message he said to me was it is still tough.
Oliver: It is tough. But for example in the life insurance industry where for a long time we struggled. We're doing much better now. We're making very good margins. So I don't think I would blame the Chinese or the environment and very often it's the foreigners not understanding Chinese customer behavior or Chinese needing their joint venture partners to help think about the successes of our car manufacturers. We had companies inside of China together with local partners that really added a lot of value to the community.
Nancy: Do you think that you find yourself perhaps at an advantage actually in this current environment as you mentioned the carmakers. I wonder with let's say German INC altogether here, is it easier for you in China compared to the likes of your U.S. peers given the current trade fight going on between Beijing and Washington?
Oliver: I'm not so sure it's easier because the Chinese think very long term yes there is a lot of quarrels. But at the end of the day, both American and Chinese that for the next hundred years they have to work together. And I have a different perspective. Germany has been a part of China for a long long time. Many of the values we have in our society are very similar even though we have a totally different political system. So China has always looked to Germany for partners and I hope we can benefit from that trust that the Chinese society has into Germany
Nancy: Given that in Germany there has been some additional scrutiny over the Chinese doing deals in Germany and Europe more broadly speaking, does that make things a bit worse for you when it comes to fears of retaliation going the other way?
Oliver: No, I don't think so. I think it's about time that we are clear with our partners and friends in China about you know what we expect them to do and what they expect us to do. It is very clear the Chinese have been always very transparent of what they want, local investment bringing know how bringing production. We have been very ambivalent in the past and I think it's totally ok for a country to say that certain parts of the economy that we consider to be strategic that we need to protect. So the key thing that the Chinese can expect that we are pretty clear around we would like them to invest. And we're not and what by road rules to play. And it's very important to the question because under the WTO rules, China still qualifies as a developing nation so they can behave despite their enormous power and might now like a developing country and that is out of date with the reality that China has as an economic power.
Nancy: It's why so many say we need to update the rules of the WTO.
Nancy: Going back to what you said about the digitalization side of things in the insurance business in China. I mean we think of all these big tech players who have a stake in Fintech. We haven't quite yet seen the likes of the U.S. big tech names in terms of Facebook, Amazon have a similar role when it comes to Fintech we have other areas off course. Do you think that that is coming and is it going to be a big disruptive factor when it comes to European companies such as yourself?
Oliver: Yeah we expect more we expect more interest. But I think also because we have in Europe in the United States much tougher regulation around customer protection and financial services than you have in China. And I think that's very important we have also much tougher regulation around data use in financial services than we for example we have outside of financial services. So it's not to protect the incumbents but it's actually about protecting the consumer. Thinking about for example healthcare. Do you want all the big tech companies to know where your health records. Probably not. And in China there is less scrutiny around that and therefore you had seen a lot of innovation but also intrusion. So I don't expect the same thing to happen doesn't mean that the tech companies will not try to cream off the economic value added for example by taking a big share in terms of the customer surplus out of advertising. It's now more expensive and in some markets and keywords to buy google word like order insurance than it is to sell a policy through an agent.
Nancy: And do you think the fresh scrutiny we've seen around some of these big tech companies the hearings on Capitol Hill all the concerns around election meddling. Do you think that's going to actually force them to put the brake into expansionary as we have just talked about?
Oliver: I hope it's not putting a brake. A lot of people are saying incumbents do not want competition. I don't think it's fair to say that. I think we need a level playing field right so if we do something through a physical channel or an internet challenge should be the same. The problem is we don't have proper regulation. We had talked about earlier today that we have regulations that come from the industrial age and they are designed in the sort of early 20th century. We need regulation that is clever that addresses the internet age and we don't have that yet. So we need everybody agreed to the 90 percent of the time. So they said we need to have better regulation around big tech but nobody knows how to do it properly without stifling innovation.
Nancy: And as a customer we want the convenience as well, so you asked the question 'do I want everyone to have access to my health data?' No I might like the ease and the convenience of having it all stored having it at the click of a button.
Oliver: Yes. And we need to reconcile the two and we are ready Allianz is certainly ready to face up to the challenge.
Nancy: Let's pivot a little bit and talk of something you probably keep an eye to in terms of the asset management side and just what is going on in terms of markets out there at the moment. You spoke to my colleagues back at Davos in January
Nancy: You were saying some risk out there is mispriced is that still how you feel today?
Oliver: Yeah you've seen that we talked about emerging markets at the time. You know with the rising interest rates people have really recalibrated risk in emerging markets in my opinion overreacted in many ways. But we see a lot of that volatility coming because politically we were living in a very difficult time and people do not know how to interpret the signals anymore. And we still have a lot of mismanagement in the central bank side you know still European money is too cheap and that leads to misallocation of assets.
Nancy: And do you think the ECB has a role to play in this. Should they be moving faster along the normalization tapering timeline?
Oliver: Now we've said for a long time that we don't believe in the ultra-loose, it just makes money cheaper for over indebted governments. Right. So this is not helping the economy is just making it easier for people to borrow money. And it's really hurting savers but that's not the issue. I think that many other things that we need what we at this point in time we need need more investment now. We need more optimism particularly in infrastructure and education and that's what we are lacking in Europe. We're quarrelling all the time but in immigration that is really masking the fact that we need to catch up with China and the United States on the tech side on creating markets for the future.
Nancy: It's interesting that you're talking about the idea that we're quarrelling all the time. To what extent is that still the legacy of the global financial crisis? Because we're here at this summit were many are on this day marking ten years since Lehman Brothers collapsed saying that the financial system has recovered, the economies have recovered, but politically we're still paying the consequences. If you see what's going on in Germany, Merkel very much came under pressure due to some of the immigration populist concerns in that country. Do you think she can survive?
Oliver: Yeah she has a lot of staying power. I would not underestimate the chancellor but that's not the real issue. The real issue is that it's exactly as you say we have healed some of the wounds but we haven't really addressed the underlying problems as long as we have totally underfunded pension system, as long as we promised benefits to our citizens particularly old ones that we know we cannot finance because our children will not do that, as long as we run infrastructure that is creaking, as long as we do not have the regulation, people are upset about the political leadership not getting the job done fixing their everyday problems of how to get to work and how they save. And the other one is there's an increasing fear that globalization eventually will not come just with financial crises but it will take jobs away. And we don't have an answer for our people to say you know where are the jobs going to come from and will they pay well. Or will we end up in the United States where 1 percent own 90 percent of all the assets. And I think people are concerned for the right reason.
Nancy: Is globalization, or blaming globalization I should say in this case, when it comes to job concerns misplaced? I wonder whether its innovation or digitalization we talked about that is going to play a bigger role here.
Oliver: There are many factors and this is why I think many of our people are concerned because it's too complicated for them to understand and that's why they're listening to populists because populists always give you a simple answer. Now I always say populists never give you a solution, they always give you only an enemy. And you see that everywhere. But short term, people are frustrated because they don't understand and they don't see a perspective. So my concern is we now need to really look at three or four things they need to get done for Europe that is really tackling externally and internal security innovation and how do we deal with technology and how do we really create markets for services rather than entrenching into 27 different countries.
Nancy: I want to talk about an area of progress and that is also what we see in the way of clients demanding more sustainable products, looking at impact investing, and making big steps in the way of sustainability. Is this something you're doing to have a feel good factor or do you see this as more important to clients?
Oliver: I am really convinced that as a large organization we have a role to play. We are Europe's largest institutional investor and for that we have to be accountable and particularly our people are asking us to play more of a role, not just to create shareholder value. So we are very proud. This week, we were awarded again the Dow Jones sustainability index number one position as Allianz. We're very proud of that and we believe is more than greenwashing. The company is really having an impact so we really believe in the criteria for completely decarbonizing our economy and we're not just talking about it's literally a business goal. The best test is always are you ready to forego profitable business and we're doing exactly that.
Communications Manager APAC, CNBC International
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