China's foreign exchange regulator said yesterday it had approved the investment quota for the first Chinese insurer to invest in overseas markets, four months after restrictions were relaxed.

The State Administration of Foreign Exchange (SAFE) said it had approved a US$1.75 billion investment quota for Ping An Insurance (Group) Company of China, close to the amount the company raised last year in an initial public offering (IPO).

Ping An, the second biggest insurer in China, raised HK$14.3 billion yuan (US$1.8 billion) in its IPO last year in Hong Kong.

The approval clears the way for the insurer to buy such assets as bonds and money market instruments in overseas markets, which analysts say is expected to help improve investment return on the company's forex holdings.

Investment opportunities are scarce for forex funds in China, where strict forex controls are still maintained and the renminbi is only partially convertible.

China issued rules last August to allow qualified insurers to invest their growing forex assets in overseas markets. Investments are restricted to mainly high-rating bonds and relatively safe money market instruments. Stocks are forbidden.

About 10 insurers, out of a total of nearly 70 Chinese, foreign or joint-venture underwriters operating in China, are qualified for investing overseas. They hold a combined US$7.5 billion in forex assets, which account for 76 percent of the nation's forex insurance funds.

Insurers welcomed the long-anticipated loosening, but have been cautious in taking the plunge.

Until last month, only two insurance companies had filed applications to SAFE. The other was the Shanghai branch of American International Assurance, the largest foreign insurer operating in China.

China Life and PICC Property and Casualty Insurance, respectively the largest life insurer and non-life insurer in China, both raised huge forex funds in overseas listings in the past two years.

"It's understandable as they have a lot of preparatory work to do - building risk management mechanisms, training staff, and finding custodian banks and fund managers," said Tuo Guozhu, a professor with the Capital University of Economics and Business.

The rules allow insurers to either find fund managers overseas, or make their own investment decisions.

Ping An will enter overseas capital markets on its own, which is one reason it became the first insurer to make the move, sources said.

(China Daily January 11, 2005)