China Ponders Allowing Insurers to Buy Foreign Bonds

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Last updated at: (Beijing Time) Thursday, August 28, 2003

China Ponders Allowing Insurers to Buy Foreign Bonds

China is considering allowing insurance companies to buy foreign bonds in a new move to broaden their investment scope.

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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.

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