The China Insurance Regulatory Commission (CIRC), the country's industry watchdog, yesterday released a detailed pilot regulation to manage the overseas investments of insurance companies' foreign assets.

"With a wide coverage and detailed rules, the pilot regulation is a compass for insurance companies to venture abroad," Long Xiangxin, manager of the capital management center of New Life China Insurance Co., told China Daily.

With 30 percent annual growth in the past two decades, China's insurance industry has gained good momentum, as has the insurance foreign exchange and assets business.

Moreover, with the listing of China Life Insurance Co., PICC Property and Casualty Co. and Ping An Insurance Co. foreign assets from the insurance sector have topped US$10 billion, mainly coming from the capitalization of joint ventures, foreign-funded insurance companies and capital raised by the three listed insurance companies.

"The regulation clarifies the expanded investment channel and tools, a big help for insurers," Wang Guojun, an insurance professor at the University of International Business and Economics (UIBE), said.

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

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

In which case, H-shares, especially red chips, will be the primary choice for investment, insiders say.

H-shares are HK dollar-denomination shares of Chinese mainland companies listed on the Hong Kong Stock Exchange, and red chips are companies with controlling Chinese mainland shareholders incorporated and listed in Hong Kong.

"The comparatively low valuation of H-shares also makes them safer," Wang says

According to Zeng Yujin, an official at the CIRC, overseas investments also have no influence on the domestic stock market,

"Because the yuan cannot be exchanged into foreign currencies under a capital account, there shouldn't be any concern that capital will be withdrawn from the domestic stock market," Zeng added. "The only influence would be psychological."

The regulation also sets an investment cap to control potential risks.

The total amount of foreign exchange that can be invested in overseas stock markets should be under 10 percent of the investment quota set by the State Administration of Foreign Exchange. Investment in a single stock is to be no more than 5 percent of the total release of that stock.

Meanwhile, the CIRC encourages insurers to invest in developed countries and regions. It has expanded the list of tradable currencies to include the US dollar, the euro, the yen, the pound, the Canadian dollar, the Australian dollar, the Singapore dollar, the Hong Kong dollar and any other currency it might approve from time to time. The list of currencies is essentially the same as that of the basket of currencies that the yuan is weighted against.

(China Daily September 12, 2005)