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Economist Calls for Cooperation Between Insurance, Securities Industries
A senior Chinese economist has called for sound circulation of funds between the insurance and securities sectors, saying that this is one of the prerequisites for the healthy development of the financial sector.
Wu Jinglian, with the Chinese government think-tank -- the Development Research Center of the State Council, said at an international seminar that the Chinese insurance industry may face major problems because of lack of access to the capital market. He said that the insurance industry now has a total insured risk of 1.5 trillion yuan (US$ 183 billion). However, aggregate capital of China's insurance company put together is below 10 billions yuan, which will greatly affect the growth in the companies' payment ability in the future.
Since most insurance companies put their capital into bank deposits and treasury bonds, the continuous drop of interest rates has already hurt the payment ability of these companies over the past few years, Wu noted.
For the past year, the Chinese government has allowed insurance companies to invest in securities.
Wu said that permitting "mutual exchange" between the insurance and securities sectors will safeguard the returns of insurance funds.
China's fledging securities market also needs insurance companies as ideal investors, he added.
Wu said there are three prerequisites for establishing sound circulation of funds between the insurance and securities sectors. First, the government should establish and strictly enforce a legal and regulatory system over the insurance industry that currently faces heavy competition.
Second, the country has to develop a stable, transparent and fair capital market. And finally, insurance companies have to create new products to meet the demand of the securities market.
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