Three financial market watchdogs Tuesday jointly published a set
of guidelines to clear the way for insurance companies investing in
the domestic stock market.
The move, announced on the eve of the resumption of trading
following Lunar New Year holidays, was evidently intended to
provide a lift to the ailing stock market, which hovered around
six-year lows in the final sessions before the week-long
holiday.
The guidelines, jointly issued by the China Insurance Regulatory
Commission (CIRC), the China
Securities Regulatory Commission and the China Banking Regulatory
Commission, provide technical details, including seats at
bourses, asset custody and settlement, for insurance companies'
investments.
The guidelines also apply to foreign insurance companies
operating in China.
CIRC said in an announcement that the?issuance of the
guidelines is a substantial and practical breakthrough for
insurance companies.
Many unanswered questions remain, such as which insurers will be
the first to be approved to trade stocks and when they will do
so.
In October, financial authorities said they would allow
insurance companies to invest up to 5 percent of their total assets
into the stock market.
In theory, that could usher 59.3 billion yuan (US$7.2 billion)
into the stock markets in Shanghai and Shenzhen, which were worth
3.7 trillion yuan (US$445 billion) at the end of last year.
But so far, no insurance company has invested, since many
technical issues remained up in the air.
The right to trade stocks will mean an important investment
instrument for China's underwriters, which are pulling in huge
premiums but are also facing obligations that are expected to peak
in years ahead.
Tuesday's move also represented a fresh attempt by the
government to boost investor sentiment in a stock market that lost
840 billion yuan (US$100 billion) in market value in 2004. The
benchmark Shanghai Composite Index shed 15 percent in the same
year.
Last month, financial authorities slashed the stamp tax rate on
securities trading from 0.2 percent to 0.1 percent, but investors
cold-shouldered the tariff cut.
Market analysts said investor confidence was weak because the
underlying problem of the market -- nontradable state and legal
entity shares -- is still unresolved.
In fact, tradable shares of China's stock market are worth less
than one third of the total. The majority of the shares are in the
hands of the listed firms' parent companies, almost all
state-owned.
Smaller investors have no say in listed companies'
decision-making processes, which is believed to be a major reason
for poor corporate governance of the listed companies.
The government began to try to unload nontradable shares in 2001
but suspended the effort on fierce debate about the pricing system
in the market.
(China Daily February 16, 2005)