Beijing plans to boost the number of international insurance companies in Hong Kong that are allowed to invest in the mainland's stock and bond markets, as part of broader initiatives to expand those markets through the qualified foreign institutional investor (QFII) scheme.
The upshot will be to increase the number of yuan-denominated insurance policies offered in Hong Kong, allowing the insurers to develop a new line of business, while also fostering wider global use of the Chinese currency.
Most of the 8 million life insurance policies written in the city are now denominated in US or Hong Kong dollars because insurers can freely invest the premiums from those policies in bonds, stocks or properties denominated in those two currencies. Insurers don't usually offer yuan-based policies because they haven't been able to invest in mainland markets. But some Hong Kong insurers have issued yuan-denominated policies to investors keen to bet on the appreciation of the yuan after Beijing encouraged wider use of the currency to settle trade and for selected investments from 2009.
Chan Ka-keung, Secretary for Financial Services and the Treasury, the official in charge of developing Hong Kong as an offshore yuan trading centre, declined to discuss any potential new measures yesterday. But insurance industry sources say an announcement of the initiatives could coincide with an expected visit by President Hu Jintao to mark the 15th anniversary of the handover of Hong Kong to Chinese rule on July 1.
The QFII scheme was launched in 2002. It enables licensed foreign investors such as international banks and pension funds to use US dollars and other currencies to buy yuan-denominated shares and bonds, subject to a foreign-exchange quota. A similar scheme denominated in yuan, called R-QFII, was introduced in December and also operates under a quota system but does not involve foreign-exchange risk.
Only a few international insurers operating in Hong Kong take part in the QFII scheme, and no insurer is yet part of the R-QFII programme. An insurance executive said this would change soon as Beijing was expected to grant more insurers access to both schemes. 'Such relaxation would be important for the local insurance companies to invest in the mainland share and bond markets so as to enable them to issue yuan-denominated insurance policies in Hong Kong,' the executive said.
Beijing is also expected to announce soon that it will lower some entry barriers for investors such as global fund managers and pension funds to attract more participants in the QFII scheme. An executive of another insurer said that over the past few months the industry had lobbied mainland regulators to further open the foreign investment schemes, receiving positive feedback.