New freedom for insurers ( 2003-08-28 08:06) (China Daily)
China is considering allowing insurance companies to buy foreign bonds in a
new move to broaden their investment scope.
Analysts say the move will give China's insurance companies a much-needed
channel to invest their growing foreign exchange funds, which are mostly put in
bank deposits at present.
"That is a concrete step in the authorities' liberalization (of investment
scope), which is prudent," said Tuo Guozhu, a professor with the Beijing-based
Capital University of Economics and Business.
Wu Xiaoping, vice-chairman of the China Insurance Regulatory Commission
(CIRC), said over the weekend his commission was negotiating with related
ministries to allow insurance companies to, within certain limits, invest in
overseas bond markets.
Some analysts say such a loosening is also part of efforts to alleviate the
upward pressure on the exchange rate of the local currency, the renminbi.
Earlier reports said the government, seeing increasing pressure on the currency
to appreciate partly as a result of trade surpluses, is considering allowing
some large State-owned enterprises to invest their foreign currency holdings in
foreign bonds.
The amount of foreign currency holdings at Chinese insurers was not
available, but insiders said it is not a small number.
Chinese insurers primarily put their forex funds in bank deposits. They are
allowed to buy treasury bonds and corporate bonds with an AA upward credit
rating, with a ceiling of 20 per cent of their total assets, but none of these
bonds, so far, are denominated in foreign currencies.
"In contrast, there may be some room for profits in overseas bond markets,"
said Tuo.
The outstanding corporate bond holdings by Chinese insurance firms totalled
27.7 billion yuan (US$3.3 billion) at the end of June, which accounted for a
meagre 3.97 per cent of their total investments partly due to the small total
issuance of corporate bonds.
Chinese insurance companies have been long lobbying the government for a
broader investment scope to boost yields and ensure their payment capacity.
Topping their list is the permission to trade stocks directly, instead of
trading through investment funds as they are doing now.
The CIRC is also reportedly close to reaching consensus with other government
agencies on letting insurance firms invest in key infrastructure projects.
