China's Financial Regulatory Authorities Support Mixed Operations Between Banks and Insurers

Strategic Insights -

As the World Trade Organization's transitional period for China expires at the end of the year, senior officials from the country's financial regulatory authorities have expressed their support for cooperation between banks and insurance companies. China's current financial regulations, which took effect in 1995, ban banks from engaging in the insurance business and vice versa. However, under its agreement with the WTO, China is expected to open its financial markets to foreign competitors at the end of 2006. In preparation, major Chinese banks have expressed their intentions to set up their own insurance companies, and insurers have become major investors in the country's stock market, investing over 49.9 billion yuan (US$6.3 billion) in stocks.

Key Takeaways:

  • Senior officials from China's financial regulatory authorities, including Tang Shuangning from the China Banking Regulatory Commission and Wu Dingfu from the China Insurance Regulatory Commission, have expressed their support for cooperation between banks and insurance companies.
  • China's financial regulatory rules, which took effect in 1995, currently ban banks from engaging in the insurance business and vice versa, but this will change with the expiration of the WTO's transitional period at the end of 2006.
  • Chinese commercial banks, including the Industrial and Commercial Bank of China, Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of Communications, have expressed their intentions to set up their own insurance companies.
  • Chinese insurers have become major investors in the country's stock market, investing over 49.9 billion yuan (US$6.3 billion) in stocks, mainly of commercial banks.
  • China's largest insurer, China Life Insurance (Group) Company, and its Hong Kong-listed branch, China Life Insurance Company Limited, were among the biggest buyers of shares in the Industrial and Commercial Bank of China when it made its initial public offering in September.
  • Insurers' investments in capital markets are expected to continue growing rapidly in line with premium revenues.

Statistics:

  • Chinese insurers invested over 49.9 billion yuan (US$6.3 billion) in stocks, mainly of commercial banks.
  • China's largest insurer, China Life Insurance (Group) Company, and its Hong Kong-listed branch, China Life Insurance Company Limited, bought 6.4 billion HK dollars (US$821 million) of stock in the Industrial and Commercial Bank of China.
  • Insurers make up five of the 14 strategic investors chosen by the Bank of China for its A shares that listed in Shanghai in July.

Sources:

  • Asia Pulse
  • China Banking Regulatory Commission (CBRC)
  • China Insurance Regulatory Commission (CIRC)