A Big Step Forward for China's Insurance Industry: Building Broader and Safer Avenues for the Utilization of Insurance Funds

By Dr. Xu Guojian, Lü Guoming* and Pek-Siang Tee, Boss & Young, Shanghai

It is widely accepted that the insurance business and the utilization of insurance funds act as the industry's 'two wings' and neither should be neglected. Yet, in China, the insurance funds utilization wing has been much weaker than the insurance business wing, mainly due to the limited investment channels for such funds and the relatively high risks inherent in an immature domestic capital market. With the rapid increase in the total assets of the insurance industry - which amounted to more than Rmb1.35 trillion by the end of May 2005, an increase of 14.1% over that at the beginning of the year - it has become increasingly important, even imperative, for the insurance funds utilization wing to be made much stronger as soon as possible. To this end, the China Insurance Regulatory Commission (CIRC), together with other departments and commissions of the State Council, have in recent years been painstakingly identifying lucrative and safe means for the handling of insurance funds. The most recent effort of the CIRC was its promulgation of the Tentative Measures for the Administration of Bond Investments by Insurance Institutional Investors (the 'Tentative Measures') on August 17, 2005 and the Implementing Rules for the Tentative Measures for the Administration of Overseas Utilization of Foreign Exchange Insurance Funds (the 'Implementing Rules') on September 1, 2005, both of which came into effect as of their respective dates of promulgation.

THE TENTATIVE MEASURES