Winterthur is expected to become the fourth foreign insurance company to obtain licence after Canada-based Manulife received preliminary approval for a joint venture in May.

Winterthur vice-president Fanny Reed said the company had received a positive response from the People's Bank of China in Shanghai.

'They [the officials] are very positive about our application,' she said.

'But we have not yet received any formal notification.' Initial investment in the Shanghai branch would be 20 million yuan (about HK$18.6 million) as required by the government, she said.

A source said Winterthur and Allianz emerged as favourites because Beijing preferred European companies.

Allianz had been favourite until a row broke out in May over a German parliamentary resolution on Tibet, the source said.

It is believed a meeting between premier Li Peng and Winterthur senior officials in May was instrumental in the decision.

Mrs Reed declined to comment on speculation about Allianz.

'We know nothing about other applicants. What I can say is Allianz is a leading company in Germany,' she said.

The company, she said, had no plans to form an insurance joint venture with a Chinese partner but would be willing to do so if Beijing requested.

'My personal understanding is that property insurance companies are not required to set up joint ventures, while the government has made it clear that foreign life insurance companies have to team up with a Chinese partner.' Manulife vice-president Marc Sterling was optimistic the joint venture between the company and mainland giant Sinochem would begin operations by the end of the third quarter as the third foreign insurer operating in China.

'We will be the third and Winterthur the fourth,' he said.

In a bid to bring the insurance market closer to international practices, the central bank has recently issued a circular which stipulates clearer capital requirements for insurance companies to ensure their financial strength.