The pilot management regulation on insurance capital's indirect investment in infrastructure projects is likely to be released early next month, insiders said, a move that was welcomed by market players plagued by limited investment channels for a long time.

 

"We have been studying the issue of infrastructure investment for a long time and have been waiting for rules to come out," said Zhang Xuewu, an investment relations officer at Ping An Insurance, China's second-biggest life insurer, which plans to set up a fund to invest in public works projects such as roads and bridges. "It's certainly good for us."

 

With the further loosening in the investment scope, Chinese insurers could expect greater profits.

 

"This could help Chinese insurers earn more from their investment and help them better match their liabilities with assets," said Wang Guojun, an insurance professor at the University of the International Business and Economics.

 

Sun Jianyong, director of the Insurance Fund Management Regulatory Department of the China Insurance Regulatory Commission (CIRC), said the detailed version of the regulation will not go public until the second half of this year. Sun was referring to the technical procedures that insurers must go through before they can make the investment.

 

Sun said insurers will have to wait until the second half of this year before they can make any substantial investments in infrastructure to ensure that risk is properly managed.

 

Such investments, mostly long-term ones, are seen as a preferred investment option for insurers, particularly life insurers that sell long-term policies.

 

According to the draft of the regulation, an insurance company's investment put into infrastructure projects should not exceed 15 percent of its total assets.

 

Statistics from CIRC showed that the total assets of the insurance industry in China topped 1.52 trillion yuan (US$187.7 billion), which means around 228.4 billion yuan (US$28.2 billion) could be invested in infrastructure projects.

 

China Pacific Insurance Group (CPIC), which has sold a 3.3 billion yuan (US$408.7 million) stake to Carlyle late last year, will be the pilot enterprises to invest in infrastructure projects, according to market insiders.

 

Wang Guoliang, chairman of CPIC, disclosed that freeways, ports and a petroleum reserve base would be their major targets when investing in infrastructure projects.

 

Since 2004, China has been striving to relax restrictions to shore up earnings in the 1.52 trillion yuan (US$187.7 billion) insurance industry and develop its capital markets.

 

The industry watchdog released a detailed pilot regulation to manage overseas investment of insurance companies' foreign exchanges in mid-September 2005.

 

According to the regulation, insurance companies can invest their foreign exchanges into overseas stock markets, structural deposits, mortgage securities and monetary funds.

 

However, the overseas stock investment is only confined to Chinese enterprises listed in securities exchanges in New York, London, Frankfurt, Tokyo, Singapore and Hong Kong.

 

Thanks to these efforts, the combined return on investment last year stood at 3.6 percent, up 0.7 of a percentage point from 2004 as companies were allowed to invest in corporate debt, domestically listed shares and securities overseas.

 

(China Daily February 22, 2006)