China Scraps Equity Investment Restrictions for Insurance Funds
China lifted limits on industries in which the country’s insurers can make equity investments and laid plans to allow insurance funds to tap private equity and venture capital investments in pilot programs, the State Council said Wednesday.
The rule changes may unleash trillions of yuan of insurance money into the economy as the government moves to fuel China’s rebound from the effects of the coronavirus pandemic.
Chinese insurers had total assets of nearly 22 trillion yuan ($3.1 trillion) as of the end of May, according to China Banking and Insurance Regulatory Commission (CBIRC) data. They had 19.7 trillion yuan of outstanding investments, including 6.8 trillion yuan in bonds, 2.8 trillion yuan in bank deposits and 2.6 trillion yuan in stocks and securities. The remaining funds are in long-term equity and debt investment plans.
The decision, disclosed after a cabinet meeting chaired by Premier Li Keqiang, formalized long-awaited rule changes to expand insurers’ equity investment activities to provide additional long-term funding to the private sector. It paves the way for the implementation of a pending 2018 revision by the CBIRC to rules governing insurance companies’ equity investments.
The State Council decision is “positive,” said Zhu Junsheng, an insurance industry expert at the Development Research Center of the State Council. Zhu said the eased restrictions apply to insurers’ investments in companies and industries as financial investors, indicating separate rules may be set for strategic investments.
Zhu said Chinese insurance companies have invested in the real economy mainly through debt investments with very limited equity investment due to regulatory restrictions. The expanded investment scope will improve the efficiency of insurance funds investment and enhance support to the real economy, Zhu said.
Under current regulations, equity investments by insurance funds are limited to insurance companies, noninsurance financial companies and equity in companies with pension, health-care and auto services businesses that are related to the insurance sector. Insurers have long lobbied to loosen restrictions on equity investments.
In 2018, the CBIRC issued a draft of new rules that would remove most limits on the equity sectors in which insurers can invest insurance funds. The draft revision said insurance funds could choose sectors and companies for equity investment taking into consideration safety, liquidity and profitability. The commission published the draft rules to seek public feedback and has yet to finalize the revision.
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