Recently, in the Fifth High-Level Forum of China’s Financial Reform, supervisory and regulatory officials from departments such as the CIRC, CSRC, CBRC, People’s Bank of China and Ministry of Finance, indicated the CIRC and CBRC have reached consensus on a pilot investment project. The project will concern investment in the insurance industry by 4 large banks allowing for some breakthrough in the Mixed Management of Banking Industry in China.
It was reported the CIRC approved Beijing Bank’s, Bank of Communications’ investment plans in Pacific-Antai Life Insurance Co., Ltd. and China Life-CMG Life Assurance Company Ltd. In short, Beijing Bank and Bank of Communications are approved to purchase the equity of the insurance company. As the Chinese government has recently relaxed restriction on investments made by banks, this will be the first time a bank has purchased equity in an insurance company.
Since 1993, separate operating systems for different financial sectors (securities, banking and insurance) have been adopted. The securities, banking and insurance sector have been supervised by the CSRC, CBRC and CIRC separately. Recently, pilot programs involving the Financial Sectors’ Mixed operation were approved by authorities for the purpose of diversifying China’s finance. The, Chinese banking industry has also obtained 583,400,000,000 RMB (net profit after tax) in 2008, a growth of 30.6% year on year. It is no doubt that the approval of these pilot investment programs will benefit the banking industry.
GUO Tianyong, Professor of the China Banking Research Center in CUFE（China University of Finance and Economics has mentioned that whether China’s four largest banks may invest in insurance companies has been discussed internally since last year. However, no policy has been formed until now. As a result of the new policy, financial supervisory departments will likely pay more attention to the ability of insurance companies and banks’ to handle financial risks in order to prevent illegal flows of capital.
Additionally, since 2006, certain financial institutions such as the Industrial and Commercial Bank of China, Bank of China and Construction Bank of China have been approved to purchase the equity of other financial institutions in the field of banking, securities, insurance, trust and lease by way of establishing a financial holding group
These reforms should bring positive effects for China’s banking sector and the Chinese economy as a whole. Given the tightening of credit markets, the ability for banks to channel their funds into new forms of investment will be greatly anticipated.