Recently it was reported in the financial news that the China Insurance Regulatory Commission of the State Council (CIRC) had allocated RMB200 billion to carry out a pilot investment program for funds held by insurance companies. The RMB200 billion has been equally invested across infrastructure projects and other equity investments.
It is understood that the CIRC has drawn up two regulations to implement the pilot program: the Administrative Measures for the Equity Investment by the Insurance Institutions and the Operating Guideline for the Insurance Institutions’ Equity Investment in the Infrastructure. Prior to the introduction of these two regulations, insurance funds had already begun to make equity investments within the insurance industry. In March 2006 the CIRC promulgated the Administrative Measures for the Pilot Indirect Investment of the Insurance Funds in the Infrastructure which permitted 5% of total life insurance funds and 2% of total property insurance funds to be invested in infrastructure projects. The State Council approved infrastructure investment programs worth RMB12 billion of which RMB10 billion was allocated to China Ping An Insurance Company’s investment in infrastructure projects and RMB 2 billion was allocated to China Life Insurance, People’s Insurance Company of China and TaiKang Life Insurance Company.
Soon after on July 20, the ceremony for the delivery of the stock of the Taichang, Changjin and Jinjiao expressways in Shanxi was held and the expressway project funded by China Ping An Trust & Investment Co. Ltd began. This was the first infrastructure project indirectly funded by Chinese insurance funds. The CIRC has since ratified many infrastructure investment project investments by Ping An Insurance Company such as the Jingdong expressway project in Hubei province and the water facilities project in Liuzhou, Guangxi province. Such projects demand large amounts of capital and long operating periods, which match the investing profiles of insurance funds.
In September 2006, the CIRC promulgated the Notice of the Investment in the Stock of the Commercial Bank by Insurance Institutions, permitting insurance institutions to invest in the equity of unlisted banks, such as state-owned commercial banks, joint equity commercial banks and urban commercial banks within China. China Life Insurance Company, the largest insurance company in China, made an investment in Guangdong Development Bank and Ping An Insurance Company merged with Shenzhen Commercial Bank. The process of allowing insurance funds to be invested in unlisted banks and in the equity of unlisted companies has resulted in the ban on investing insurance funds being gradually removed. With the implementation of the PRC’s newly revised Partnership Enterprise Law, the channels available for insurance funds to be invested in the equity of unlisted companies will continue to expand and diversify. This will further accelerate the fixed financial operation reform in China.
These new markets provide new opportunities for providers of legal services. The new opportunities coexist with challenges for lawyers specializing in insurance and investments. Perhaps the reforms will hasten the return of a bull market allowing the Chinese capital markets to boom once again.