CIRC Loosens Investment Restrictions on Overseas
Chinese Insurance Companies
The China Insurance Regulatory Commission, responsible
for regulating China's insurance industry, has issued
a durective allowing Chinese insurance companies overseas
to make independent investment decisions outside of China.
Previously, Chinese companies had to repatriate their
earnings back to China, where it was converted to Chinese
yuan. The decision will free up US$9.775 billion for overseas
investment.
The directive
(in simplified Chinese) was made because largely because
ROI (return on investment) in China has been falling compared
to overseas investments. High amounts of foreign investment
in China have also driven inflation up in the past few
months, just as the government of Premier Wen Jiabao has
been seeking to cool off the economy. High consumer demand
have also driven energy prices higher.
The directive specifically states that a major goal of
the decision is to help educate China's insurance companies
about risk management in international markets, so that
they will be more active players in the future.
Several broad guidelines for investment were issued as
part of the directive. They were:
- All participating insurance companies must issue regular
internal reports to the CIRC on their capitalization,
foreign exchange under their control, investments and
investment decision process.
- All companies must limit their target investments
to certain qualified areas. Bonds must be limited to
certain rankings.
- Investments must be limited to 80% of their foreign
exchange earnings in the preceding year.
- All companies must create and manage a trust management
system, and introduce guidelines to prevent corruption,
fraud and abuse.
- All companies must develop internal systems so that
knowledge and experience about investment management
is accrued in the company.
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