Caixin
Jan 18, 2018 07:27 PM
FINANCE

Quick Take: Regulator Steps Up Oversight On How Insurers Finance Local Governments

Workers in Huaian, Jiangsu province, lay down tracks for the city's light-rail system. A new government regulation says that insurance firms cannot provide funding to local governments through illicit means, and local governments will not be allowed to provide illegal guarantees to insurers. Photo: Visual China
Workers in Huaian, Jiangsu province, lay down tracks for the city's light-rail system. A new government regulation says that insurance firms cannot provide funding to local governments through illicit means, and local governments will not be allowed to provide illegal guarantees to insurers. Photo: Visual China

The China Insurance Regulatory Commission and the Ministry of Finance will more closely supervise insurance funds used to finance local governments.

Insurance firms cannot provide funding to local governments through illicit means, and local governments will not be allowed to provide illegal guarantees to insurers, according to a document the agencies released on Thursday.

In the past, insurance firms, trust firms and banks have funneled money to local governments through phony public-private partnership projects, nonstandard government investment funds and phantom purchases of goods and services.

Although the money involved in these illicit dealings does not represent a large proportion of overall illegal funds, it is still a “sizeable” amount, so the two agencies have put forward the new regulatory document to keep risks in check, a source close to the regulators told Caixin.

The document stipulates that local governments cannot provide any guarantees for company or individual debt that insurance companies invest in. In addition, insurance funds that invest in innovative businesses cannot require local governments to guarantee the principal amount or investment returns, according to the document.

The government guidance aims to encourage insurance institutions to support the real economy and prevent and address risks from local government debt, according to the document.

Contact reporter Liu Xiao (liuxiao@caixin.com)

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