The Obstacles to Drawing Long-Term Capital to China’s Stock Markets (AI Translation)
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文｜财新周刊 全月 吴雨俭
By Quan Yue, Wu Yujian, Caixin Weekly
仅有30多年历史的A股市场，已经鼓励中长期资金入市25年，但长期资金入市水平还有待提高。
The A-shares market, with a history of just over 30 years, has been encouraging medium to long-term capital to enter for 25 years, but the level of long-term capital involvement still needs improvement.
2004年版“国九条”（《国务院关于推进资本市场改革开放和稳定发展的若干意见》）中，就提出了要推动支持保险资金以多种方式直接投资资本市场，逐步提高社会保障基金、企业补充养老基金、商业保险资金等投入资本市场的资金比例。
In the 2004 version of the "Nine Principles of the State Council" (formally known as "Several Opinions of the State Council on Promoting the Reform, Opening, and Stable Development of the Capital Market"), it was proposed to support and encourage insurance funds to directly invest in the capital market through various means, while gradually increasing the proportion of social security funds, enterprise supplementary pension funds, and commercial insurance funds that are invested in the capital market.
当时，保险资金被允许投资次级债券和可转债，同时可直接入市。2010年，原保监会将保险资金投资权益类资产监管比例由不超过总资产的10%提高至20%，又在2014年将该比例拓宽至30%；2020年，这一投资比例上限继续拓宽，保险公司根据偿付能力水平高低进行分类设定，可投资权益类资产的最高比例达到45%。
At that time, insurance funds were permitted to invest in subordinated bonds and convertible bonds, and could directly enter the market. In 2010, the former China Insurance Regulatory Commission raised the supervisory ratio of insurance funds investment in equity assets from no more than 10% of total assets to 20%, and further widened it to 30% in 2014. In 2020, the upper limit on this investment ratio was further expanded, allowing insurance companies to set different classifications based on solvency levels, with the maximum proportion of equity assets investable reaching 45%.
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- The A-shares market seeks to attract more long-term capital, with insurance funds' equity investment limits progressively increased to 45% by 2020, yet they still hold only 12% in stocks by end of 2024.
- With the introduction of the "Implementation Plan," nearly 1 trillion yuan is expected to enter the market from insurance funds, public funds, and the People's Bank of China's innovative financing tools.
- Efforts include adjusting performance evaluations to counteract solvency constraints and market infrastructure inadequacies, encouraging long-term investments while refining risk hedging tools.
The A-shares market in China has been working to attract medium to long-term capital for over 25 years, yet long-term investments remain limited.[para. 1] The "Nine Principles of the State Council" in 2004 encouraged such investments by allowing insurance funds to invest directly in the market and increasing the allowable investment in equity assets over time, reaching a potential allocation of 45% by 2020.[para. 1][para. 2] Despite this, by the end of 2024, insurance funds' investments in stocks and equity funds were only 12% of their total assets. Public funds, while leading asset management with 32.83 trillion yuan, held less than 6 trillion yuan in A-shares.[para. 2]
On January 23, 2025, a press conference introduced an "Implementation Plan on Promoting Medium- to Long-term Capital Market Entry," aiming for nearly a trillion yuan to enter the market, with substantial contributions from insurance funds and public equity funds.[para. 3][para. 4] However, attracting such investments necessitates improving the A-share market's quality and providing sufficient financial tools for risk management, to cater to long-term capital's needs for stable income and controllable risks.[para. 4]
Insurance funds are expected to be the mainstay for this capital entry, with state-owned companies targeted to invest 30% of new premiums in A-shares starting in 2025.[para. 5] The approval of the second batch of long-term equity investment pilots suggested large potential investments, but the terms have prompted industry discussions on terminology and its implications for actual investment amounts.[para. 5] Various interpretations of "new premiums" lead to estimates of annual market inflows from 200 billion to 450 billion yuan.[para. 6][para. 7]
Despite regulatory changes allowing increased allocations, constraints remain due to solvency requirements and the new accounting standards which impact long-term interest rate risk hedging and asset-liability matching.[para. 9][para. 10] The solvency transition period extension to 2025 provides temporary reprieve, but implementing new accounting standards post grace period will require careful consideration.[para. 12][para. 14]
Public funds, meanwhile, do not guarantee principal and have faced critiques for potentially prioritizing management fees over investor returns.[para. 19] However, they are being encouraged to grow their A-share market value holdings by at least 10% annually, which equates to about 600 billion yuan in incremental funding each year.[para. 22] Despite past challenges, including market volatility, there is optimism for a rebound due to ETF development.[para. 21][para. 24]
The central bank's innovative tools, namely a special relending facility and the Securities, Fund, and Insurance Company Swap Facility (SFISF), aim to facilitate market entry by providing specific liquidity support.[para. 29] By early 2025, SFISF had already conducted operations totaling 105 billion yuan, with further enhancements to streamline processes and attract institutional participation anticipated.[para. 34] These tools have broadened the central bank's role to include non-bank financial support, effectively extending its "lender of last resort" capacity to facilitate liquidity in periods of market stress.[para. 37]
In conclusion, while there is a strong strategic push for long-term capital market entry, particularly from insurance funds and public funds, challenges in market infrastructure, regulatory constraints, and solvency considerations continue to impact the pace and scale of investment growth.[para. 5][para. 12][para. 27]
- China Pacific Life Insurance
太保寿险 - China Pacific Life Insurance was approved to participate in a pilot program for long-term stock investment through a contractual fund approach. This initiative, as reported by the National Financial Supervision and Administration, aims to support capital market stability by leveraging long-term funds. The second batch of this pilot program, approved with a scale of 520 billion yuan, includes several insurance asset management companies, alongside China Pacific Life Insurance.
- Taikang Life Insurance
泰康人寿 - Taikang Life Insurance is one of the companies approved to participate in China's second batch of long-term stock investment trials. It, along with other insurance firms, will employ a contractual fund model to engage in long-term stock investing, contributing to stabilizing the capital market. This initiative is part of the broader goal to increase insurance funds' participation in the stock market, as outlined in the recent government strategy.
- Sunshine Life Insurance
阳光人寿 - Sunshine Life Insurance has been approved to participate in the second batch of long-term stock investment trials, with a scale of 520 billion yuan, through a contractual fund method. This initiative aims to leverage long-term capital and patient capital to support the stable operation of the capital market.
- Huatai Securities
华泰证券 - Huatai Securities is mentioned in the context of analysis by its non-bank analyst, Li Jian, regarding the interpretation of terms related to insurance funds entering the market. Various interpretations can lead to different financial impact estimates for large state-owned insurance companies, ranging from 2,000 to 4,500 billion yuan annually.
- China International Capital Corporation
中信建投 - The article does not mention China International Capital Corporation (CICC) directly or provide specific information related to it. It focuses on efforts to encourage long-term investments in China's A-share market, including policy measures and related financial institutions' roles.
- Huachuang Securities
华创证券 - The article mentions Huachuang Securities analyst Xu Kang, who estimates that insurance funds could see an increase exceeding 450 billion yuan in the market by 2025. However, the increase is constrained by factors like solvency capacity, new accounting standards causing volatility, and asset-liability matching of insurance product portfolios.
- Shenwan Hongyuan Securities
申万宏源 - Shenwan Hongyuan analyst Fu Jingtao noted that in 2024, due to the growth of ETFs, the public fund's holding of A-share market value increased by 13.4%. Although slower than the 14.9% growth in A-share market circulation value, the annual 10% increase in public fund holdings isn't unattainable.
- E Fund Management
易方达 - The article mentions that among actively managed equity products, E Fund Management's E Fund Blue Chip Select holds the largest scale at 374.98 billion yuan. Its annualized return since inception is 9.17%, but it faced a significant three-year yield decline of -32.52%.
- China Europe Fund Management
中欧基金 - The article does not specifically mention China Europe Fund Management. However, it highlights the challenges public funds face, such as investing with an emphasis on long-term, stable returns and the need for performance assessments over extended periods to align with investment goals.
- Fullgoal Fund Management
富国基金 - The article does not explicitly mention Fullgoal Fund Management. If you need specific information about this company, it is not covered in the text provided.
- Xingquan Fund Management
兴全基金 - The article mentions Xingquan Fund Management in the context of its product "Xingquan Huarun." As of the end of 2024, the fund was among the top five actively managed equity products, with a scale of 228.70 billion yuan and an annualized return of 12.73% since inception. However, it faced a significant drawdown over the past three years, with a return of -27.82%.
- Invesco Great Wall
景顺长城 - The article does not mention Invesco Great Wall or provide any information specifically about this company. It focuses on the challenges and strategies related to attracting long-term investment in the A-share market, including efforts by Chinese authorities to encourage institutional investors like insurance companies and public funds to increase their investments in equities.
- In 2004：
- The 'Nine Principles of the State Council' were proposed, encouraging insurance funds' direct investment in the capital market and increasing the proportion of social security and enterprise pension funds invested in the market.
- In 2010：
- The supervisory ratio of insurance funds' investment in equity assets was raised from no more than 10% to 20% by the former China Insurance Regulatory Commission.
- In 2014：
- The supervisory ratio of insurance funds' investment in equity assets was further widened to 30%.
- In 2020：
- The upper limit of insurance funds' investment ratio in equity assets was expanded, allowing a maximum of 45% based on solvency levels.
- As of the end of 2024：
- Investment in stocks and equity funds by insurance funds amounted to 4.4 trillion yuan, accounting for only 12%.
- January 23, 2025：
- The State Council Information Office held a briefing to explain the 'Implementation Plan on Promoting Medium- to Long-term Capital Market Entry.'
- January 26, 2025：
- China Bank Insurance News reported the approval of the second batch of long-term equity investment pilots, with a scale of 52 billion yuan.
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