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Letter to the Editor

China to Allow Insurance Funds to Invest in Stocks

The China Insurance Regulatory Commission (CIRC) recently finalized rules on insurance fund investment in stocks and has applied for approval of the new policy from China's State Council, the Beijing-based Economic Observer reported.

A decision will be announced after the national holiday on October 1 to invigorate the country's lacklustre markets, the 21st Century Business Herald newspaper reported.

"In the long run, undoubtedly it will bring more liquidity to the market," said Yi Linmin of Xingye Securities. "It will increase the stability of capital resources, which can reduce market fluctuations."

A host of structural and regulatory problems have been weighing on China's stock markets for some time while government measures to cool the overheated economy have also turned investors off this year.

Since April the benchmark Shanghai Composite Index has fallen more than 30 percent, touching a 52-week low of 1,259.43 in early September.

But over the past two weeks it has rebounded nearly 14 percent, aided by a series of government pronouncements that have raised hopes for a surge of fresh money into stocks, ending a two-year liquidity drought.

Key among these are plans to lower the barrier for qualified foreign institutional investors to buy yuan-denominated securities and to allow commercial banks to set up fund management arms to invest in equities, bonds and the money market.

China's insurers have seen total assets grow by 30 to 40 percent annually over the last several years and at the end of July this year they totalled 1.09 trillion yuan, government figures show.

Most of the funds were deposited with banks or invested in bonds but growing inflation and low interest rates have made it difficult for insurance companies to grow their assets.

In late 1999, the government allowed insurers to buy equities-based mutual funds but the funds underperformed in the then already weak stock market.

The reports also said the CIRC will soon appoint Sun Jianyong, head of annuity supervision at the Ministry of Labor and Social Security, to lead the insurance fund investment supervision department and to help enhance risk control.

Separately, the China Securities Regulatory Commission (CSRC) said it has issued draft rules to limit the power of large state-owned shareholders who hold non-tradable stock in listed companies.

The securities regulator said that the rules will state that over 50 percent of shareholders holding tradable shares and attending shareholders meetings will have to give their consent to business plans, including fund raising and any significant asset restructurings or overseas listings, before they can proceed.

At present most public companies in China are controlled by state-owned companies which hold non-tradable shares, leaving tradable shareholders, or minority shareholders, with few rights in corporate operational decisions.

The draft rules also strengthen rules governing embezzlement by large shareholders in listed companies or the illegal extension of loan guarantees to related parties, a statement on the CSRC website said.

Listed companies will now be required to disclose matters affecting operations to all shareholders and not just a few as is the case now, it said.

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