AIG, the world's sixth-largest company by assets and biggest
insurer, according to the Forbes Global 2000 list for 2007, is one
of the few US institutions to be founded in China, its roots dating
from 1919 when Cornelius Vander Starr, a veteran of World War I,
founded a small insurance company in Shanghai called American
Asiatic Underwriters, later to become AIG.

               
More famously, Starr's successor, Maurice R Greenberg, built
relations with China's leadership from 1975, his first visit to the
country predating by several years the revolutionary moves by Deng
Xiaoping to open up China to Western influences.

               
In this, Greenberg proved himself a master of developing
guanxi, a term summarized as “connections” and now
recognized as holding the key to successful development of business
in China.

               
According to Benjamin A Shobert, reviewing Robert Buderi and
Gregory T Huang's book of that name, “guanxi is commonly
perceived as partnering and understood to focus the attention of
Westerners on the great importance that the Chinese put on
relationships. To most Westerners guanxi emphasizes personal
relationships in contrast to the contractual, non-relational
business practices common in America.

               
“While a portion of the word's meaning can simply be
seen as stressing relationships, the authors emphasize that a better
understanding of the word is to emphasize four things: trust, favor,
dependence and adaptation – the last what the authors call 'patience
and cultivation'.”

               
Greenberg's patience and cultivation of relations with
China's leaders saw him play a key role in building links between
the US and China, while his company had a front-runner's view as it
and China metamorphosed into leading players in the global business
world.

               
Starr was the initial pathbreaker. When he set up shop in
Shanghai, there were many other Westerners selling insurance in the
city, then as now the country's financial hub. But these potential
rivals almost exclusively concentrated their efforts on selling to
other Westerners. Starr realized that the Chinese people themselves
represented a vast and underserved market for insurance, with
relatively low risks. This insight would enable him to become one of
the wealthiest men in the world.

               
Within 10 years, Starr had established offices across China,
Hong Kong, the Philippines, Indochina, Jakarta and Kuala Lumpur. In
1926, he opened his first office in the United States. The growth of
his company was temporarily disrupted by the Chinese civil war and
the general turmoil in East Asia. In 1939, Starr moved the
headquarters of his corporate empire to the Empire State – New York.
From there, his company and fortune grew many fold.

               
In 1962, Starr appointed Greenberg to head AIG's then failing
North American operations. In a remarkable display of business
prowess, Greenberg turned the unit around, a feat that encouraged
Starr to name him his successor before passing away in 1968.

               
Starr bequeathed all his wealth to the C V Starr Foundation,
one of the largest foundations in the United States, with over $3
billion in assets. Greenberg became the chairman of this foundation
while also assuming the reins at AIG. Under his leadership, the
company prospered while he himself became one of the kingpins of
American foreign policy.

               
In 1977, he became a member of the Council of Foreign
Relations, arguably America's most influential think-tank, and over
the next three decades he would hold numerous leadership positions
in the council, culminating in 1997 with the founding of the
Greenberg Chair.

               
Today, the Greenberg Chair “is the senior person
directly responsible for the substantive content and
management” of the think-tank. Greenberg has also been a member
of the board of directors of the New York Stock Exchange; a former
chairman, deputy chairman and director of the Federal Reserve Bank
of New York; a member of the US-China Business Council; the chairman
of the Asia Society; and a member of the Advisory Committee for
Trade Policy and Negotiations to the President of the United States.

               
With all of these roles, plus his control over the resources
of the Starr Foundation and the American International Group,
Greenberg's power to shape America's foreign policy was rivaled only
by Citizen Kane.

               
Greenberg's foreign policy views were heavily influenced by
two factors. One was his experience in World War II of the
liberation of the Nazi concentration camp at Dachau. The other was
the legacy of Starr's love for China. This latter factor would
ultimately play an enormous role in shaping America's policy toward
China for more than a quarter of a century.

               
In all of his actions and with all of his influence,
Greenberg exercised a sanguine desire to foster reconciliation and
cooperation between the United States and the People's Republic of
China. The impact of this desire can be seen in the fingerprint that
Greenberg has left on academic and policy institutions around the
United States.

               
At his discretion, the Starr Foundation has funded numerous
fellowships with the Asian Cultural Council, donated $300,000 to
Columbia University's East Asian Library and considerably more to
Berkeley's C V Starr East Asian Library. Most recently, Greenberg
and the Starr Foundation each donated $25 million to Yale University
to create the Maurice R Greenberg Yale-China Initiative.

               
Greenberg's lobbying efforts were a driving factor behind
America's decision to support China's admission to the World Trade
Organization, which it officially joined in November 2001.
Undoubtedly, a fair amount of the credit for the creation of an
American policy environment that is favorable to China is due to
Greenberg and the resources that were generated by AIG.

               
AIG's own development in China took various, often
ground-breaking, forms. China America Insurance Company was formed
in 1980 as a 50-50 joint venture between AIG companies and the
People's Insurance Company of China (PICC), the first joint venture
between a foreign insurance organization and PICC. Personal ties
with future leaders were also forged. In 1990, AIG financed and
chaired a financial services conference in Shanghai to assist then
city mayor and later country premier Zhu Rongji in introducing the
international financial community to investment opportunities in
Shanghai.

               
Two years later, AIG unit American International Insurance (AIA)
established a branch office in Shanghai, to become the first
foreign-owned life and non-life insurance business to receive a
license from the People's Bank of China. In 1995, AIG companies won
licenses to extend operations to Guangzhou, the key city in the
country's efforts to open up to the outside world of commerce, and a
year later it secured a lease allowing it to return in 1998 to the
Shanghai Bund, home of C V Starr's original Shanghai insurance
companies.

               
In 2003, by which time AIG's presence in the country extended
to several provinces, the insurer acquired a 9.9% stake in PICC
Property and Casualty (PICC P&C) when the Chinese company listed
in Hong Kong. In 2005, as the Chinese government continued to ease
its grip on the financial sector, AIG Private Bank became the first
foreign private bank to receive approval to open a representative
office in Shanghai.

               
One immediate effect of AIG's collapse could be on PICC
P&C's stock price, which would be at risk if AIG liquidated its
stake, Citigroup analyst Bob Leung said in a research note on
Tuesday.

               
Chinese insurers also face a greater counter-party risk from
the collapse of AIG than from Lehman Brothers, the other US
financial giant that crumpled in the past few days. Lehman, which
has filed for bankruptcy has significant exposure in Asia.
“Given the very low life insurance accession rate in Asia,
“if AIG loses its A- rating or its situation worsens
significantly, we expect the financial impact to affect mainly
P&C insurers,” Leung wrote.

               
S&P lowered AIG's long-term counterparty rating to 'A-'
on Monday.

               
China's insurance regulator declared that AIG businesses in
the country were sound, echoing statements from the rest of the
region. This is however a big concern going forward, given the large
market share that AIG commands in many Asian markets, and the sheer
volume of domestic securities that it holds across the region.

               
Other insurers in China meanwhile may gain from AIG's loss.
“China Life, with a strong balance sheet and limited non-yuan
asset exposure (less than US$3 billion and mainly in H-stock Hong
Kong listed shares
and cash) has the strongest balance sheet of all regional insurers
and is likely to benefit from a 'flight to quality'
perspective,” Leung wrote.

               
The sudden decline of AIG may lead to a reduced influence of
the company in international affairs, and a cut in the amount of
resources that are lavished on America's foreign policy
establishment for the purpose of encouraging China-friendly policy.

               
As it is, Greenberg's pathfinding and influential role in
China has already been superceded to a large extent by the huge
influx of other Western business leaders, notable among them Henry
Paulson, who as chairman and chief executive of Goldman Sachs spent
much time and and effort building his own relations with the present
Chinese leadership.

               
Paulson's appointment as US Treasury Secretary in 2006 came
at a time of simmering tensions between Washington and Beijing over
China's reluctance to strengthen its currency and rein in the
growing trade surplus it enjoyed with the US. Demands for faster
appreciation of the yen continue, but their tenor has become less
strident since Paulson took up his government post, with the focus
on relations changing through the Strategic Economic Dialogue to
broader long-term bilateral economic interests.

               
Ironically, while the US Federal Reserve played the dominant
role in bailing out AIG this week, it was Paulson holding key
strings of power in Washington while Maurice Greenberg sat on the
sidelines.

               
In 2005, Greenberg was accused of financial malfeasance. In
the ensuing scandal, he was ousted from his leadership role at AIG.
Nonetheless, he retained direct ownership of 39 million shares of
AIG stock, and an additional 243 million shares through the
investment company that he still controls, C V Starr and Co. At the
beginning of this year, his shares were worth $15.8 billion. By the
close of the market on Tuesday afternoon, they were worth a little
more than $1 billion.

               
The links that Greenberg had cultivated over the decades with
the Chinese community certainly are also looking frayed when it
comes to trust in AIG products in the wake of this week's collapse.

               
As Chan Akya reports in Asia Times Online on Wednesday
panic-stricken policyholders lined up all day on Wednesday in
Singapore to surrender their policies to secure redemption value.

               
In Hong Kong, where AIA is the largest life insurer with more
than 26% of the market and more than 1.9 million policies sold, more
than 1,700 people canceled their insurance policies with AIA on
Tuesday. On Wednesday, some 170 policy holders rushed to AIA
headquarters to cut their insurance or investments. The Hong Kong
government has demanded AIA seek approval before it removes any
asset out of the territory.

               
One 50-year-old woman at the hectic commercial and retailing
center of Causeway Bay said she decided to surrender her insurance
policy today as she was worried AIA's business might be affected.

               
“I was supposed to pay premiums this month but I don't
want to take any risk now. I am so afraid that I will lose all my
money here. To keep as much money as I have in my pocket, I
surrender the policy now,” she said.